ACCESS SOLUTIONS INTERNATIONAL INC, SB-2/A, 1996-09-19

ACCESS SOLUTIONS INTERNATIONAL INC
SB-2/A, 1996-09-19
COMPUTER STORAGE DEVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1996
REGISTRATION NO. 333-05285
==============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
Amendment No. 2
to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Access Solutions International, Inc.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
Delaware 3572 05-0426298
(State or jurisdiction of incorporation (Primary Standard Industrial (I.R.S. Employer Identification
or organization) Classification Code Number) Number)
</TABLE>

650 TEN ROD ROAD, NORTH KINGSTOWN, RHODE ISLAND 02852 (401) 295-2691
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF
BUSINESS)
------

CHRISTINE M. MARX, Esq.
Edwards & Angell
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
(201) 376-7700
(Name, address and telephone number of agent for service)
------

Please address a copy of all communications to:

RUBI FINKELSTEIN, Esq.
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
(212) 506-5000
------

Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
------

The registrant hereby amends this Registration Statement on such date as
may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration Statement shall
become effective on such date as the Commission acting pursuant to said
Section 8(a) may determine.

===============================================================================
<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1996

PROSPECTUS

LOGO

1,066,667 UNITS
EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK AND
ONE REDEEMABLE WARRANT

This Prospectus relates to an offering (the "Offering") of 1,066,667 Units
(the "Units"), each Unit consisting of two shares of common stock, $.01 par
value per share ("Common Stock"), and one redeemable common stock purchase
warrant ("Redeemable Warrant") of Access Solutions International, Inc., a
Delaware corporation (the "Company"). The shares of Common Stock and
Redeemable Warrants comprising the Units are separately tradable commencing
upon issuance. Each Redeemable Warrant entitles the registered holder thereof
to purchase one share of Common Stock at an initial exercise price of $
______ [66 2/3 % of the initial public offering price per Unit], subject to
adjustment, at any time from issuance until ___________________, 2001 [60
months after the date of this Prospectus]. The Company shall have the right
to redeem all, but not less than all, of the Redeemable Warrants, commencing
____________ , 1997 [12 months after the date of this Prospectus] at a price
of $.05 per Redeemable Warrant on 30 days' prior written notice, provided
that the Company shall have obtained the consent of Joseph Stevens & Company,
L.P. (the "Underwriter"), and the average closing bid price of the Common
Stock equals or exceeds 150% of the then exercise price per share, subject to
adjustment, for any 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption. See "Description of Securities -- Redeemable Warrants."

Prior to the Offering, there has been no public market for the Units, the
Common Stock or the Redeemable Warrants, and there can be no assurance that
such a market will develop after the completion of the Offering or, if
developed, that it will be sustained. It is currently anticipated that the
initial public offering price will be $7.50 per Unit. The offering price of
the Units and the exercise price and other terms of the Redeemable Warrants
were determined by negotiation between the Company and the Underwriter and
are not necessarily related to the Company's asset or book values, results of
operations or any other established criteria of value. See "Risk Factors,"
"Description of Securities" and "Underwriting." The Company has applied to
include the Units, the Common Stock and the Redeemable Warrants on the Nasdaq
SmallCap Market ("Nasdaq") under the symbols "ASICU," "ASIC" and "ASICW,"
respectively. The Company and the Underwriter may jointly determine, based
upon market conditions, to delist the Units upon the expiration of the 30-day
period commencing on the date of this Prospectus.

THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" LOCATED ON PAGE 8 AND "DILUTION."
------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Price to Public Underwriting Discounts (1) Proceeds to Company (2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit .... $ $ $
Total (3) .... $ $ $
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include additional compensation payable to the Underwriter in
the form of a non-accountable expense allowance. In addition, see
"Underwriting" for information concerning indemnification and
contribution arrangements, and other compensation payable to the
Underwriter.

(2) Before deducting estimated expenses of $900,000 payable by the Company,
including the Underwriter's non-accountable expense allowance.

(3) The Company has granted to the Underwriter an option (the "Over-Allotment
Option"), exercisable for a period of 45 days after the date of this
Prospectus, to purchase up to 160,000 additional Units upon the same
terms and conditions set forth above, solely to cover over-allotments, if
any. If the Over-Allotment Option is exercised in full, the total Price
to Public, Underwriting Discounts and Proceeds to Company will be
$__________, $___________ and $__________, respectively. See
"Underwriting."

The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to
approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify the Offering and to reject any order in whole or in part. It is
expected that delivery of the Units offered hereby will be made against
payment, at the offices of Joseph Stevens & Company, L.P., New York, New
York, on or about ________________, 1996.

JOSEPH STEVENS & COMPANY, L.P.

The date of this Prospectus is ______________, 1996.
<PAGE>

(continued from cover page)

This Prospectus also relates to 750,000 Redeemable Warrants (the "Selling
Securityholder Warrants") and 750,000 shares of Common Stock (the "Selling
Securityholder Shares") issuable upon exercise of the Selling Securityholder
Warrants. The Selling Securityholder Warrants will be issued at the
consummation of the Offering to certain security holders (the "Selling
Securityholders") upon the automatic conversion of certain warrants (the
"Bridge Warrants") issued to the Selling Securityholders in a private
financing consummated in May 1996 (the "Bridge Financing"). Neither the
Selling Securityholder Warrants nor the Selling Securityholder Shares may be
sold for a period of eighteen (18) months from the effective date of the
Registration Statement without the prior written consent of the Underwriter.
The Selling Securityholder Warrants and the Selling Securityholder Shares are
not being underwritten in the Offering. The Company will not receive any
proceeds from the sale of the Selling Securityholder Warrants or the Selling
Securityholder Shares by the holders thereof, although the Company will
receive proceeds from the exercise, if any, of the Selling Securityholder
Warrants. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources," "The Company
- -- Recent Bridge Financing" and "Selling Securityholders."

In addition, this Prospectus relates to 100,000 shares of Common Stock
beneficially owned by adult children of the Company's former President and
Chief Executive Officer (the "Selling Shareholders"). The shares of Common
Stock held by the Selling Shareholders are not being underwritten in the
Offering. The shares of Common Stock held by the Selling Shareholders may not
be sold for a period of eighteen (18) months from the effective date of the
Registration Statement without the prior written consent of the Underwriter.
The Company will not receive any proceeds from the sale of the Common Stock
held by the Selling Shareholders. The expenses of the concurrent offering by
the Selling Securityholders and the Selling Shareholders (collectively
referred to herein as the "Holders") will be paid by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Selling Securityholders."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL CAP MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. In January 1996, the Company effected a
one-to-74 reverse stock split (the "reverse stock split") of the Company's
Common Stock. Except as otherwise noted, all information in this Prospectus:
(i) gives effect to the reverse stock split; (ii) assumes no exercise of the
Underwriter's over-allotment option; (iii) assumes no exercise of the Bridge
Warrants; (iv) assumes no exercise of the Redeemable Warrants included in the
Units; (v) assumes no exercise of the Redeemable Warrants to be exchanged at
the consummation of the Offering for the Bridge Warrants; and (vi) assumes no
exercise of the Underwriter's Warrants. Investors should carefully consider
the information set forth under the heading "Risk Factors."

THE COMPANY

Access Solutions International, Inc. (the "Company") develops, assembles,
sells and services optical data storage systems consisting of integrated
computer hardware and software for the archival storage and retrieval of
massive quantities of computer-generated information. The Company believes
that its proprietary computer output to laser disk ("COLD") data storage
systems provide a faster, more reliable and more economical method of storing
vast quantities of computer-generated data than is generally available from
other COLD systems or from traditional data storage methods. The Company's
optical data storage systems, which are marketed under the brand names OAS
and GIGAPAGE, are sold principally to large organizations that need to store
and retrieve large quantities of computer-generated data. Currently, COLD
systems developed and manufactured by the Company are used by companies such
as Pershing Securities, a division of Donaldson Lufkin & Jenrette Inc.,
Securities Industry Automation Corporation, Bell Sygma, Inc., Prudential
Securities Incorporated, Bank of Boston and Nationwide Mutual Insurance
Company.

The Company's optical data storage systems consist of both hardware and
software products. The hardware component of the systems is the Optical
Archiving System ("OAS") which consists of an optical disk robotic
autochanger and a controller that commands the robotic autochanger to
automatically mount and dismount optical disks in response to instructions
received from data storage and retrieval software. The Company's software is
an end-user application for report storage and retrieval which operates in
conjunction with the Company's OAS hardware component.

When the Company's application software products are integrated with the
OAS, the Company believes that several technological and competitive
advantages are achieved. As compared with other COLD systems, the Company's
patented directory structure and hardware data compression capability enable
more data to be stored on, and retrieved quickly from, an optical disk,
thereby maximizing the performance of the user's system while reducing the
cost of storage. The Company's integrated COLD systems enable an end user to
retrieve and view documents or reports based on a report index, which speeds
access to data. The GIGAPAGE software is designed specifically to optimize
access to robotic disk storage systems, unlike that of most competing
systems. It employs sophisticated caching to make speed of access to the data
comparable to that of magnetic disk, but at a much lower cost of storage. The
Company has also developed a system-level "driver" for optical disk robotics
called ODSM.

Business organizations need to archive data for a number of reasons,
including compliance with governmental regulations, retention of historical
records and maintenance of strategically valuable historical business
information. The widespread use of computers has resulted in exponential
growth in the amount of data that must be economically archived and stored
while remaining readily accessible for retrieval. In the past, organizations
have attempted to solve this problem by using one or more of four
traditionally available data storage and retrieval alternatives: magnetic
disk, paper, magnetic tape, and computer output microfiche or microfilm
("COM"). Each of these traditional storage methods has inherent disadvantages
as an archival storage medium. Magnetic disk is expensive and subject to data
loss upon failure. Paper is manually cumbersome, bulky and an expensive means
of long-term storage. Magnetic tape provides response times as long as 15
minutes when storing or retrieving data even when mounting is automated

3
<PAGE>

using robotics. COM is cumbersome to access and time consuming to generate.
The storage alternatives of paper, magnetic tape and COM have nonetheless
been used for archiving because of the high cost of the most popular storage
method: magnetic disk (in IBM mainframe terminology, direct access storage
devices ("DASD"). The Company's COLD storage system is an alternative system
which permits the storage of data in a less expensive manner than with DASD,
paper or COM while allowing for quicker retrieval of such data than is
possible with magnetic tape, paper or COM.

The market for COLD storage systems is segmented into the mainframe, PC
(stand-alone or LAN-based), client/server and CD-ROM markets. To expand its
market penetration beyond the IBM-compatible mainframe market segment in
which it currently competes, the Company intends to develop enhancements to
its application software products and further develop certain software
products for use in other COLD systems market segments.

Business organizations that are subject to government regulation of data
retention are the primary prospects for purchases of the Company's products.
According to a 1994 industry report published by Frost & Sullivan, the
estimated aggregate domestic sales of COLD systems in all market segments are
projected to reach approximately $333.9 million, $693.8 million and $986.9
million in l996, l997 and l998, respectively, and the average annual growth
rate in all market segments of the number of COLD system units sold was
projected to be approximately 48% during the period from l994 to l998.
Additionally, the report forecasted that total product and service revenue in
the mainframe segment of the domestic COLD systems market will be
approximately $118.7 million, $120.7 million and $124.7 million in 1996, 1997
and 1998, respectively.

The Company's objective is to become a leading provider of COLD systems.
To achieve this objective, the Company is pursuing a business strategy that
includes the following principal elements:

Identify and Pursue Customers With Large CPUs and Massive Document Storage
and Retrieval Requirements. By targeting its sales and marketing efforts
towards large business entities equipped with mainframe computers, the
Company believes it can maximize its opportunities to encourage the purchase
and use of its COLD systems.

Establish Strategic Alliances. The Company believes that the establishment
of collaborative relationships with certain software companies which produce
complementary products will enable the Company to more effectively market its
products and gain greater access and credibility with prospective customers.

Develop a Network of International Resellers. The Company plans to qualify
international resellers that would enable it to pursue opportunities arising
in the international COLD systems market. The Company believes that the size
of the international COLD systems market is equal to or larger than the
domestic COLD systems market.

Exploit Opportunities in Growth Segments of the COLD Systems
Market. Recognizing that significant opportunities are expected to develop in
the vertical market-specific segments of the COLD systems market, the Company
intends to enter into partnerships with clients to build vertical
market-specific variants of its product, spanning mainframe and client/server
architectures. The Company anticipates such development will enable it to
expand its prospect base and provide enhancements that are not available from
its competitors.

4
<PAGE>

THE OFFERING

Securities offered by the
Company: .................... 1,066,667 Units, each Unit consisting of two
shares of Common Stock and one Redeemable
Warrant. The Common Stock and the Redeemable
Warrants will be detachable and separately
transferable immediately upon issuance. Each
Redeemable Warrant entitles the holder
thereof to purchase one share of Common
Stock at an initial exercise price of
$_______ [66 2/3 % of the initial public
offering price per Unit], subject to
adjustment, from the date of issuance until
________, 2001 [60 months after the date of
this Prospectus]. Commencing 12 months from
the date of this Prospectus, the Company
shall have the right at any time to redeem
all, but not less than all, of the
Redeemable Warrants at a redemption price of
$.05 per Redeemable Warrant, on 30 days'
prior written notice, provided that (i) the
average closing bid price of the Common
Stock for any 20 trading days within a
period of 30 consecutive trading days ending
on the fifth trading day prior to the date
of the notice of redemption, equals or
exceeds 150% of the then exercise price per
share, subject to adjustment, and (ii) the
Company shall have obtained the written
consent of the Underwriter. See "Description
of Securities."

Securities offered by Selling
Securityholders and Selling
Shareholders: ............... 750,000 Redeemable Warrants, which will be
issued to the Selling Securityholders upon
the automatic conversion of the Bridge
Warrants, an aggregate of 750,000 shares of
Common Stock issuable upon exercise of such
Redeemable Warrants and 100,000 shares of
Common Stock which are held by the Selling
Shareholders (collectively, the "Concurrent
Offering"). The Redeemable Warrants and the
shares of Common Stock being registered for
the account of the Holders at the Company's
expense are not being underwritten in the
Offering, but may be offered for resale at
any time on or after the date hereof by the
Selling Securityholders and Selling
Shareholders. The Company will not receive
any proceeds from the sale of these
securities, although it will receive
proceeds from the exercise, if any, of the
Redeemable Warrants. See "Selling
Securityholders."

Common Stock Outstanding before
the Offering: ............... 1,510,606 shares (1)
Common Stock to be outstanding
after the Offering: ....... 3,643,940 shares (1)

Redeemable Warrants to be
Outstanding after the
Offering: ................... 1,816,667(2)

- ------
(1) Excludes 501,763 shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Stock Option Plan (the "1996 Plan"), the 1994
Directors Stock Option Plan (the "1994 Directors Plan") and certain
non-plan options. Options to purchase an aggregate of 248,351 shares of
Common Stock at an exercise price equal to $3.75 under the 1996 Plan,
options to purchase an aggregate of 1,014 shares of Common Stock at an
exercise price of $222 under the 1994 Directors Plan and non-plan
options to purchase an aggregate of 891 shares of Common Stock at
exercise prices ranging from $74 to $399.60 are outstanding as of August
1, 1996. See "Management -- Executive Compensation -- Stock Option Plans"
and "-- Non-Plan Options."

(2) Includes 750,000 Selling Securityholder Warrants.

5
<PAGE>

Use of Proceeds: .............. The Company intends to use the net proceeds
as follows: (i) repayment of indebtedness,
including $1,500,000 incurred in connection
with the Bridge Financing and $290,000 of
bank indebtedness; (ii) approximately
$1,400,000 for research and development for
product modifications to support multiple
platforms, provide device independence and
increase modularity to speed enhancements,
and for external contracting of general and
vertical market-specific software
enhancements; (iii) approximately $850,000
for the expansion of the Company's products
to address the client/server market; (iv)
approximately $1,500,000 to further develop
and enhance the Company's sales and
marketing programs; and (v) the balance for
general corporate purposes, including
research and development, accrued interest
and working capital.

Proposed Trading Symbols on
NASDAQ SmallCap Market: ..... Units: ASICU
Common Stock: ASIC
Redeemable Warrants: ASICW

6
<PAGE>

SUMMARY FINANCIAL INFORMATION

The summary financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements, the notes thereto and other
financial and statistical information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1995 1996
----------- -----------
(in thousands except share
and per share data)
<S> <C> <C>
Statement of Operations Data:
Net sales
Products ................................ $ 3,126 $ 1,352
Services ................................ 476 635
----------- -----------
Total net sales ...................... 3,602 1,987
Cost of sales ............................. 1,300 580
----------- -----------
Gross profit .............................. 2,302 1,407
Operating expenses ........................ 4,681 5,358(1)
----------- -----------
Loss from operations ...................... (2,379) (3,951)
Interest expense, net ..................... 92 190
----------- -----------
Loss before extraordinary gain ............ (2,471) (4,141)
Extraordinary gain on debt restructuring .. -- 320
----------- -----------
Net loss .................................. $ (2,471) $ (3,821)
=========== ===========
Net loss applicable to common stock:
Net loss ................................ $ (2,471) $ (3,821)
Accrued dividends on preferred stock .... (88) (109)
----------- -----------
$ (2,559) $ (3,930)
=========== ===========
Net loss per common share:
Loss before extraordinary item .......... $ (1.14) $ (1.88)
Extraordinary item ...................... -- .14
----------- -----------
$ (1.14) $ (1.74)
=========== ===========
Weighted average shares of Common Stock (2) 2,250,259 2,256,150
</TABLE>

<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1995 1996
--------- -----------------------------
Actual Actual As Adjusted (3)
--------- ---------- ---------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) .......................... $ (625) $(1,971) $4,193
Total assets .......................................... 2,527 2,874 7,384
Total liabilities ..................................... 2,353 3,533 1,879
Total stockholders' equity (deficit) .................. (1,914) (659) 5,505
</TABLE>

- ------
(1) Includes $744,000 of compensation expense for a former officer, including
$424,830 of non-cash expenses associated with the fair value of the stock
issued.

(2) Computed using the weighted average number of shares of Common Stock
outstanding during the period and other potentially dilutive instruments
issued at prices below the assumed initial public offering price during
the twelve month period prior to the date of effectiveness of the
Registration Statement of which this Prospectus forms a part. See Note 1
to the Financial Statements.

(3) Adjusted to reflect (i) the receipt and initial application of the net
proceeds from the Offering and (ii) the initial application of such net
proceeds to repay the $1,500,000 Bridge Financing and $290,000 of bank
indebtedness, including recognition of non-recurring interest expense of
$136,000 for the unamortized portion of the original issue discount
relating to repayment of the Bridge Notes as defined herein. See "The
Company," "Use of Proceeds" and "Capitalization."

7
<PAGE>

RISK FACTORS

The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the
securities offered hereby.

Working Capital Deficiencies; History of Losses; Accumulated Deficit;
Ability to Continue as a Going Concern. The Company has a history of limited
working capital and has had working capital deficiencies in each of the
fiscal years ended June 30, 1994, 1995 and 1996. As of June 30, 1994, 1995
and 1996, the Company had working capital deficiencies of approximately
$603,000, $625,000 and $1,971,000, respectively. In addition, except for the
fiscal years ended June 30, 1989, 1990 and 1991, the Company has incurred net
losses since its incorporation in 1986. For the fiscal years ended June 30,
1994, 1995 and 1996, the Company incurred net losses of approximately
$2,500,000, $2,500,000, and $3,800,000, respectively. There can be no
assurance that the Company's operations will achieve profitability at any
time in the future or, if achieved, sustain such profitability. Although
management estimates the Company will have Federal and state net operating
loss carryforwards of approximately $5,100,000 available as of June 30, 1996
to offset future taxable income that may be generated within the carryforward
period, due to various limitations imposed by the Internal Revenue Service,
the utilization of such losses will be limited to no more than $330,000 per
year, if the Offering is consummated. See Note 9 to the Financial Statements.
As of June 30, 1996, the Company had a stockholders' deficit of $659,000. The
Company's independent auditors have included an explanatory paragraph in
their report dated August 2, 1996 on the Company's Financial Statements
stating that the financial statements have been prepared based on the
assumption that the Company will continue as a going concern and that the
Company has suffered recurring losses from operations and has a working
capital deficiency that raises substantial doubt about its ability to
continue as a going concern. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements
and notes thereto.

Future Capital Needs; Uncertainty of Additional Funding. Based on its
current operating plan, the Company anticipates that its existing capital
resources together with the proceeds of this Offering will be adequate to
satisfy its capital requirements for a period of at least twelve months from
the date of this Prospectus. Thereafter, additional financing will be
necessary for the continued support of the Company's products. Historically,
the Company has been dependent upon debt and equity financing from its
affiliates. There can be no assurance that the Company's affiliates will
continue to make debt or equity financing available to the Company. A portion
of the proceeds of the Offering will be used to repay certain indebtedness to
Malcolm G. Chace, III, a director and principal stockholder. See "Use of
Proceeds" and "The Company -- Recent Bridge Financing." Additional financing
may be either equity, debt or a combination of debt and equity. An equity
financing could result in dilution in the Company's net tangible book value
per share of Common Stock. There can be no assurance that the Company will be
able to secure additional debt or equity financing or that such financing
will be available on favorable terms. In addition, the Company has agreed not
to sell or offer for sale any of its securities for a period of 18 months
following the effective date of this Registration Statement without the
consent of the Underwriter. If the Company is unable to obtain such
additional financing, the Company's ability to repay its debts and its
ability to maintain its current level of operations will be materially and
adversely affected. In such event, the Company will be required to reduce its
overall expenditures, including its research and development activity, and
may default on its obligations. See "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Securities
Eligible for Future Sale."

Variable Operating Results; Lengthy Sales Cycles. The Company's operating
results have in the past and may in the future fluctuate significantly
depending upon a variety of factors which vary substantially over time,
including industry conditions; the timing of orders from customers; the
timing of new product introductions by the Company and competitors; customer
acceleration, cancellation or delay of shipments; the length of sales cycles;
the level and timing of selling, general and administrative expenses and
research and development expenses; specific feature needs of customers; and
production delays. A substantial portion of the Company's quarterly revenues
are derived from the sale of a relatively small number of COLD systems which
range in price from approximately $150,000 to $900,000. As a result, the
timing of recognition of revenue from a single order has in the past and may
in the future have a significant impact on the Company's net sales and
operating results for particular financial periods. The decision to purchase
a COLD system from the Company involves a significant commitment of capital
by the Company's customers and generally the consent of a number of internal

8
<PAGE>

decision-makers. Therefore, there are frequently lengthy periods of time
between the initiation of customer contact by the Company and the closing of
a sale of the Company's products. During the lengthy sales cycle for the
Company's products, the Company may expend substantial funds and management
effort in anticipation of a sale which may not occur. These expenditures will
adversely affect the Company's revenues and results of operations. The
Company currently is a party to a contract which provides for a $6,000 per
month penalty in the event that an additional software feature is not
delivered by January 1, 1997. There can be no assurances that delivery will
be made by such date.

Dependence on Principal Product. The Company currently derives
substantially all of its revenues from sales of its COLD systems and related
software products and maintenance services. As a result, any factor adversely
affecting sales of the COLD systems would have a material adverse effect on
the Company. The Company's future financial performance will depend in part
on its ability to successfully develop and introduce new and enhanced
versions of the COLD systems and other products. There can be no assurance of
the Company's ability to develop or introduce such systems or products. See
"Business -- Products."

Rapid Technological Change; Product Development. The market for the
Company's products is characterized by rapid technological developments,
evolving industry standards, swift changes in customer requirements and
frequent new product introductions and enhancements. The Company currently
devotes and intends to continue to devote substantial resources to research
and development to enhance product features and the Company's proprietary
technology and knowledge. The Company's continued success will be dependent
upon its ability to continue to enhance its existing products and to develop
and introduce in a timely manner new products incorporating technological
advances and responding to customer requirements. To the extent one or more
of the Company's competitors introduces products that more fully address
customer requirements, the Company's business could be adversely affected.
There can be no assurance that the Company will be successful in developing
and marketing enhancements to its existing products or new products on a
timely basis or that any new or enhanced products will adequately address the
changing needs of the marketplace. If the Company is unable to develop and
introduce new products or enhancements to existing products in a timely
manner in response to changing market conditions or customer requirements,
the Company's business and operating results could be adversely affected.
From time to time, the Company or its competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten
the life cycles of the Company's existing products. There can be no assurance
that announcements of currently planned or other new products will not cause
customers to delay their purchasing decisions in anticipation of such
products. Such delay could have a material adverse effect on the Company's
business and operating results.

Reliance on Single or Limited Sources of Supply. The Company relies on
single or limited sources for the supply of several components of its
products, including optical disk storage libraries, CPU boards, fiber optic
channel hardware and high-density integrated circuits. The Company does not
maintain supply commitments with any of its suppliers. The loss of any such
source, any disruption in such source's business or failure by it to meet the
Company's needs on a timely basis could cause shortages in component parts
and could have a material adverse effect on the Company's operations. See
"Business -- Manufacturing." The Company believes that other sources exist
for the components of its products, although in some instances additional
time may be required to integrate the new sources' products with the
Company's production process.

Competition. The computer data storage and retrieval market is highly
competitive and the Company expects such competition to intensify. Certain
competitors of the Company have substantially greater financial, marketing,
development, technological and production resources than the Company. The
Company's major competitors in the COLD systems market include IBM
Corporation, FileTek Corporation, Eastman Kodak Company, Data/Ware
Corporation, Anacomp, Inc., Mobius Management Systems, Inc., Computer
Associates International, Inc., RSD America, Inc. and Network Imaging Systems
Corp. The Company believes that the competitive factors affecting the market
of its products and services include vendor and product reputation, system
features, product quality, performance and price, as well as the quality of
customer support services and training. The relative importance of each of
these factors depends upon the specific customer involved. There can be no
assurance that the Company will be able to compete successfully in all or any
of these areas against current or future competitors. Moreover, the Company's
present or future competitors may be able to develop products comparable or
superior to those offered by the Company, offer lower price products or adapt
more quickly than the

9
<PAGE>

Company to new technologies or evolving customer requirements. In order to be
successful in the future, the Company must respond to technological change,
customer requirements and competitors' current products and innovations.
There can be no assurance that the Company will be able to continue to
compete effectively in its present market segment, in any new market segment
into which the Company may expand, or that future competition will not have a
material adverse effect on its business, operating results and financial
condition. See "Business -- Competition."

Recent Turnover in Management. Mr. Hector Wiltshire served as interim
President and Chief Executive Officer from January 1996 through July 1, 1996,
at which time he resigned for health reasons. Mr. Robert Stone was elected
President and Chief Executive Officer August 1, 1996. The election of a new
Chief Executive Officer has inherent risks. If Mr. Stone is unable to work
with the Company's personnel, suppliers or customers, or is unable to become
sufficiently knowledgeable about the Company's technology, he may not provide
needed direction to the Company's growth and development which would likely
materially adversely affect the Company's results of operations and financial
condition. The Company also has commenced a search for a new Chief Financial
Officer. See "Management."

Ability to Manage Growth. As part of its business strategy, the Company
intends to continue to expand its research and development and its sales
operations. This strategy will require expanded customer services and
support, increased personnel throughout the Company, expanded operational and
financial systems and implementation of new control procedures. There can be
no assurance that the Company will be able to attract qualified personnel or
successfully manage expanded operations. Competition for technical personnel
in the Company's industry is intense. As the Company expands, it may from
time to time experience constraints that will adversely affect its ability to
satisfy customer demand in a timely fashion or to provide consistent levels
of support to existing customers. There can be no assurance that the Company
will anticipate all of the changing demands that expansion may place on the
Company's operational, management and financial systems and controls or that
the Company will be able to continue to improve such systems and controls. If
the Company's management is unable to manage growth effectively, the
Company's business, results of operations, financial condition and liquidity
could be materially and adversely affected.

Dependence on Significant Customers. Historically, the Company has sold
its products to a relatively small number of significant customers. Sales to
Nationwide Mutual Insurance Company, Bank of Boston Corporation Technology
Services and Bell Sygma, Inc. accounted for 35%, 22% and 11%, respectively,
of the Company's total net sales during the year ended June 30, 1996. Sales
to Bank of Boston Corporation Technology Services, Chevron Information
Technologies, Inc., Securities Industry Automation Corporation, Prudential
Securities Incorporated, and Bell Sygma, Inc. accounted for 18%, 16%, 15%,
14% and 10%, respectively, of the total net sales for the year ended June 30,
1995. The loss of any one of these significant customers or the inability of
the Company to attract new customers could have a material adverse effect on
the Company's operations and financial condition. See "Business --
Customers."

Dependence on Key Personnel. The success of the Company will depend
significantly upon the personal efforts and abilities of its key employees,
particularly Robert H. Stone, President and Chief Executive Officer,
Christopher Neefus, Vice President-Sales, and George H. Steele, III, Vice
President-Marketing. The Company does not have employment contracts with Mr.
Neefus or Mr. Steele, nor does the Company maintain key person life insurance
policies on any personnel. Mr. Stone was elected President and Chief
Executive Officer on August 1, 1996. The loss of the services of any of these
key employees could have a material adverse effect on the Company. See
"Business -- Employees," "Management -- Directors and Executive Officers."

Protection of Intellectual Property. The Company's success depends in
significant part on maintenance and protection of its intellectual property.
The Company attempts to protect its intellectual property rights through a
range of measures, including patents, trade secrets and confidentiality
agreements. The Company has not sought and would be unable to obtain patent
protection in any foreign country for any of its technology currently
patented in the United States. There can be no assurance that the Company
will be able to effectively protect its technology, that others will not be
able to develop similar technology independently or that the Company will
have the resources necessary to adequately protect and enforce rights it may
have with respect to its intellectual property. Although the Company is not
aware of any actual or potential assertions against it, there can be no
assurance that third party claims alleging infringement of intellectual
property rights, including infringement

10
<PAGE>

of patents that have been or may be issued in the future, will not be
asserted against the Company. Any assertions of intellectual property claims
could require the Company to discontinue the use of certain processes or to
cease the manufacture, use and sale of infringing products, to incur
significant litigation costs and damages, or to develop noninfringing
technology or acquire licenses to the alleged infringed technology.
Litigation may also divert the efforts of management and technical personnel
from other matters. There can be no assurance that the Company would be able
to obtain such licenses on acceptable terms or to develop noninfringing
technology. See "Business -- Intellectual Property."

Absence of Dividends. The Company has not paid any cash dividends on the
Common Stock since its inception and the Company does not anticipate paying
cash dividends in the foreseeable future. See "Dividend Policy."

Broad Discretion of Management in Use of Proceeds; Repayment of
Indebtedness to Insider. Approximately 12% of the estimated net proceeds of
the Offering (approximately 25% if the Underwriter's over- allotment option
is exercised in full) is to be used for general corporate purposes in the
discretion of the Company's management, upon whose judgment the public
investors must depend. In addition, $250,000 of the estimated net proceeds of
the Offering will be paid to Malcolm G. Chace, III, a director and principal
stockholder, to repay the Bridge Notes held by him, plus accrued interest
thereon. See "Use of Proceeds," "The Company" and "Principal Stockholders."

Possible Control by Management; Board and Audit Committee
Composition. Upon completion of the Offering, the executive officers and
directors will beneficially own approximately 21% of the outstanding Common
Stock and may be able to elect all the Company's directors and thereby direct
the policies of the Company. Furthermore, the Company currently has only one
director who is not an employee of the Company or a principal stockholder or
an affiliate thereof, and such director is not a member of the Audit
Committee of the Board of Directors. See "Principal Stockholders" and
"Management."

Securities Eligible for Future Sale. Sales of substantial amounts of
Common Stock after the Offering could adversely affect the market price of
the Company's Common Stock. The number of shares of Common Stock available
for sale in the public market is limited by restrictions under the Securities
Act and lock-up agreements under which the holders of more than 98% of the
issued and outstanding shares prior to the Offering have agreed not to sell
or otherwise dispose of any of their shares for a period of 18 months after
the date of this Prospectus (the "Lock-up Period") without the prior written
consent of the Underwriter. The Underwriter may, in its sole discretion and
at any time without notice, release all or any portion of the securities
subject to lock-up agreements. Although the Underwriter does not currently
intend to release all of such securities from the lock-up agreements prior to
their expiration, it may from time to time release all or a portion of
securities subject thereto depending on a securityholder's individual
circumstances, as market conditions permit. Of the 3,643,940 shares of Common
Stock that will be outstanding after the Offering, the 2,133,334 shares sold
in this Offering will be freely tradable without restriction or further
registration under the Securities Act, except that shares owned by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"), may generally only be sold in compliance with
applicable provisions of Rule 144. Beginning 90 days following the date of
this Prospectus, approximately 26,064 additional shares will become eligible
for sale in compliance with Rule 144 promulgated under the Securities Act.
Approximately 98% of the currently outstanding shares are subject to lock-up
agreements; of such shares, 1,504,026 will be eligible for sale, subject to
the volume limitations of Rule 144, beginning upon the expiration of the
Lock-up Period. In addition, subject to the consent of the Underwriter, the
Company intends to register after the effectiveness of the Offering a total
of up to 500,000 shares of Common Stock issued or issuable pursuant to the
1996 Plan. Of the up to 500,000 shares to be registered, 248,351 shares are
subject to outstanding options as of August 1, 1996, of which options to
purchase a total of 8,351 shares are exercisable. All of the shares subject
to such exercisable options are subject to lock-up agreements. See
"Management -- Stock Option Plans," "Description of Securities," "Securities
Eligible for Future Sale" and "Underwriting."

11
<PAGE>

the underlying shares of Common Stock and 100,000 shares of Common Stock are
being registered in the Concurrent Offering. Holders of such New Warrants and
of such shares of Common Stock have agreed not to, directly or indirectly,
issue, offer to sell, sell, grant an option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of
(collectively, "Transfer") such shares of Common Stock for a period of 18
months from the effective date of the Registration Statement without the
prior written consent of the Underwriter.

Absence of Public Market; Arbitrary Determination of Offering Price;
Possible Volatility of Stock Price. Prior to this Offering, there has been no
public market for the Units, Common Stock or Redeemable Warrants.
Consequently, the initial public offering price of the Units has been
determined by negotiations among the Company and the Underwriter and bears no
relationship to the price of the Company's securities after this Offering.
See "Underwriting." There can be no assurance that any active public market
for the Units, Common Stock or Redeemable Warrants will develop or be
sustained after the Offering, or that the market price of the Units, Common
Stock or Redeemable Warrants will not decline below the initial public
offering price. The trading prices of the Units, Common Stock and Redeemable
Warrants could be subject to wide fluctuations in response to actual or
anticipated quarterly operating results of the Company, announcements of
technological innovations or new applications by the Company or its
competitors and general market conditions, as well as other events or
factors. In addition, stock markets have experienced extreme price and volume
trading volatility in recent years. This volatility has had a substantial
effect on the market price of many technology companies, and has often been
unrelated to the operating performance of those companies. This volatility
may adversely affect the market price of the Units, Common Stock and
Redeemable Warrants.

Dilution. Persons purchasing Units at the initial public offering price
will incur immediate and substantial dilution in the net tangible book value
per share of Common Stock of $2.41 or 64% ($2.26 or 60% if the Underwriter's
over-allotment option is exercised in full). See "Dilution."

Underwriter's Lack of Experience. Although the Underwriter commenced
operations in May 1994, it does not have extensive experience as an
underwriter of public offerings of securities. In addition, the Underwriter
is a relatively small firm and no assurance can be given that the Underwriter
will be able to participate as a market maker in the Units, Common Stock or
Redeemable Warrants, and no assurance can be given that any broker-dealer
will make a market in the Units, Common Stock or Redeemable Warrants. See
"Underwriting."

Underwriter's Potential Influence on the Market. It is anticipated that a
significant amount of Units will be sold to customers of the Underwriter.
Although the Underwriter has advised the Company that it intends to make a
market in the Units, Common Stock and Redeemable Warrants, it will have no
legal obligation to do so. The prices and the liquidity of the Units, Common
Stock and Redeemable Warrants may be significantly affected by the degree, if
any, of the Underwriter's participation in the market. No assurance can be
given that any market activities of the Underwriter, if commenced, will be
continued. See "Underwriting."

Continued Quotation on the Nasdaq SmallCap Market; Potential Penny Stock
Classification. The Company has applied to have the Units, Common Stock and
Redeemable Warrants approved for quotation on the Nasdaq SmallCap Market and
believes it will meet the initial listing requirements upon consummation of this
Offering. The Company currently has no intention to delist the Units immediately
after the minimum inclusion period. However, the Company and the Underwriter may
jointly determine, based upon market conditions to delist the Units upon the
expiration of the 30-day period commencing on the date of this Prospectus.
No assurance can be given that it will be able to satisfy the criteria for
continued quotation on the Nasdaq SmallCap Market following this Offering.
Failure to meet the maintenance criteria in the future may result in the Units,
Common Stock and Redeemable Warrants not being eligible for quotation. In such
event, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Units, Common Stock and
Redeemable Warrants.

If the Company were removed from the Nasdaq SmallCap Market, trading, if
any, in the Units, Common Stock or Redeemable Warrants would thereafter have
to be conducted in the over-the-counter market in the so-called "pink sheets"
or, if then available, Nasdaq's OTC Bulletin Board. As a result, an investor
would find it more difficult to dispose of, and to obtain accurate quotations
as to the value of, such securities.

In addition, if the Units, Common Stock or Redeemable Warrants are
delisted from trading on Nasdaq and the trading price of the Common Stock is
less than $5.00 per share, trading in the Common Stock would also be subject
to the requirements of Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as

12
<PAGE>

amended (the "Exchange Act"). Under such rule, broker/dealers who recommend
such low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchaser's written consent
prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990 also requires additional disclosure in connection with any
trades involving a stock defined as a penny stock (generally, according to
recent regulations adopted by the Securities and Exchange Commission (the
"Commission"), any equity security not traded on an exchange or quoted on
Nasdaq that has a market price of less than $5.00 per share, subject to
certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and
the risks associated therewith. Such requirements could severely limit the
market liquidity of the Units, Common Stock and Redeemable Warrants and the
ability of purchasers in the Offering to sell their securities in the
secondary market. There can be no assurance that the Units, Common Stock and
Redeemable Warrants will not be delisted or treated as a penny stock.

Registration of Shares Underlying the Redeemable Warrants. The Redeemable
Warrants issued in the Offering are not exercisable unless, at the time of
exercise, the Company has distributed a current prospectus covering the
shares of Common Stock issuable upon exercise of such Redeemable Warrants and
such shares have been registered, qualified or deemed to be exempt under the
securities laws of the state of residence of the holder who wishes to
exercise such Redeemable Warrants. In addition, in the event any Redeemable
Warrants are exercised at any time after nine months from the date of this
Prospectus, the Company will be required to file a post- effective amendment
and deliver a current prospectus before the Redeemable Warrants may be
exercised. Although the Company will use its best efforts to have all such
shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of such
Redeemable Warrants, there is no assurance that it will be able to do so.
Holders of Redeemable Warrants who exercise such Redeemable Warrants at a
time the Company does not have a current prospectus may receive unregistered
and, therefore, restricted shares of Common Stock. Although the Units will
not knowingly be sold to purchasers in jurisdictions in which the Units are
not registered or otherwise qualified for sale, purchasers may buy Redeemable
Warrants in the after market or may move to jurisdictions in which the shares
underlying the Redeemable Warrants are not registered or qualified during the
period that the Redeemable Warrants are exercisable. In this event, the
Company would be unable to issue shares to those persons desiring to exercise
their Redeemable Warrants unless and until the shares and Redeemable Warrants
could be qualified for sale in the jurisdiction in which such purchasers
reside, or an exemption from such qualification exists in such jurisdiction,
and holders of Redeemable Warrants would have no choice but to attempt to
sell the Redeemable Warrants in a jurisdiction where such sale is permissible
or allow them to expire unexercised.

Redemption of Redeemable Warrants. Commencing ------ , 1997 [12 months
after the date of this Prospectus], the Company shall have the right to
redeem all, but not less than all, of the Redeemable Warrants, at a price of
$.05 per Redeemable Warrant on 30 days' prior written notice, provided that
the Company shall have obtained the consent of the Underwriter, and the
average closing bid price of the Common Stock equals or exceeds 150% of the
then exercise price per share, subject to adjustment, for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading
day prior to the date of the notice of redemption. In the event the Company
exercises the right to redeem the Redeemable Warrants, such Redeemable
Warrants will be exercisable until the close of business on the date fixed
for redemption in such notice. If any Redeemable Warrant called for
redemption is not exercised by such time, it will cease to be exercisable and
the holder will be entitled only to the redemption price.

Reduced Probability of Change of Control or Acquisition of Company Due to
Existence of Anti-Takeover Provisions. The Company's Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), contains certain
provisions that reduce the probability of any change of control or
acquisition of the Company. Pursuant to the Restated Certificate, the Board
of Directors has the ability to issue Preferred Stock in one or more series
with such rights, obligations and preferences as the Board of Directors may
determine without any further vote or action by the stockholders. The rights
of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the

13
<PAGE>

outstanding voting stock of the Company. Although the Company has no present
plans to issue any shares of Preferred Stock, there can be no assurance that
it will not issue Preferred Stock at some future date. Further, certain
provisions of Delaware law could delay or make more difficult a merger,
tender offer or proxy contest involving the Company. While such provisions
are intended to enable the Board of Directors to maximize stockholder value,
they may have the effect of discouraging takeovers which could be in the best
interest of certain stockholders. There is no assurance that such provisions
will not have an adverse effect on the market value of the Company's stock in
the future. See "Description of Securities." In addition, the Company's
Restated Certificate provides that its directors shall not be personally
liable to the Company or its stockholders for monetary damages in the event
of a breach of fiduciary duty to the extent permitted by Delaware law.

14
<PAGE>

THE COMPANY

The Company, which was incorporated in Delaware in 1986 under the name
Aquidneck Systems International, Inc., develops, assembles, sells and
services optical data storage systems consisting of integrated computer
hardware and software for the archival storage and retrieval of massive
quantities of computer-generated information. In June 1996, the Company
changed its name to Access Solutions International, Inc.

The Company's executive offices are located at 650 Ten Rod Road, North
Kingstown, Rhode Island 02852 and its telephone number is (401) 295-2691.

Recent Bridge Financing. On May 28, 1996, the Company consummated a bridge
financing (the "Bridge Financing") pursuant to which it issued an aggregate
of: (i) $1,500,000 in principal amount of promissory notes (the "Bridge
Notes") which bear interest at the rate of 10% per annum and are due and
payable upon the earlier of: (a) the closing of the sale of securities or
other financing of the Company from which the Company or its subsidiary
receives gross proceeds of at least $2,500,000 or (b) May 28, 1997, and (ii)
750,000 warrants (the "Bridge Warrants"), each Bridge Warrant entitling the
holder to purchase one share of Common Stock at an initial exercise price of
$1.50 per share (subject to adjustment upon the occurrence of certain events)
during the three-year period commencing May 28, 1997. Original issue discount
in the amount of $150,000 associated with the Bridge Financing will be
amortized to interest expense over the term of the bridge debt. The net
proceeds of approximately $1,390,000 from the Bridge Financing were used for:
(i) repayment of indebtedness in the principal amount of $85,000 to a
director and principal stockholder; (ii) research and development expenses in
the approximate amount of $336,000; (iii) selling expenses in the approximate
amount of $126,000; (iv) sales commissions in the approximate amount of
$65,000; (v) customer support expenses in the amount of $191,000; and (vi)
general working capital purposes. Upon the consummation of the Offering, each
Bridge Warrant will automatically, without any action by the holder thereof,
be converted into a Redeemable Warrant (the "New Warrant") having terms
identical to those of the Redeemable Warrants underlying the Units offered
hereby. The New Warrants and the underlying shares of Common Stock issuable
upon exercise of the New Warrants are being registered under the Securities
Act of 1933, as amended (the "Securities Act"), in the Registration Statement
of which this Prospectus is a part. The Company intends to use a portion of
the proceeds of this Offering to repay the entire principal amount of, and
accrued interest on, the Bridge Notes, including $250,000 plus accrued
interest to Malcolm G. Chace, III, a director and principal stockholder. See
"Use of Proceeds."

Recapitalization. In January 1996, the Company effected a recapitalization
(the "Recapitalization") of its capital without a formal reorganization. As
part of the Recapitalization, the Board of Directors approved the reverse
stock split, negotiated a conversion (the "Conversion") of debt in the amount
of $2,635,415 plus unpaid interest in the amount of $62,129 plus warrants to
purchase 4,240 shares of common stock into 1,041,012 shares of Common Stock
and retained Hector D. Wiltshire as its President and Chief Executive Officer
on an interim basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Certain Transactions." Following the Recapitalization, approximately 2.2% of
the issued and outstanding Common Stock was held by holders of Common Stock
prior to the Recapitalization and approximately 69% of the issued and
outstanding Common Stock was held by the holders of debt who participated in
the Conversion. Additionally, in January 1996, the Company issued 416,500
shares of Common Stock to Mr. Wiltshire in consideration for (i) his
agreement to serve as the Company's interim President and Chief Executive
Officer; (ii) his agreement to relinquish warrants he had acquired in
connection with the $500,000 bridge financing he provided to the Company in
September 1995; and (iii) his agreement to loan the Company $250,000 on a
short-term basis. Such shares represent approximately 28% of the issued and
outstanding Common Stock. See "Certain Transactions -- Transactions with Mr.
Wiltshire" and Notes 2 and 14 to the Financial Statements.

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<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Units offered by the
Company hereby, after deduction of underwriting discounts, non-accountable
expense allowance and Offering expenses, are estimated to be $6,300,000
($7,344,000 if the Underwriter's over-allotment option is exercised in full),
assuming an initial public offering price of $7.50 per Unit.

The Company intends to use the net proceeds as follows: (i) approximately
$1,500,000 to repay the Bridge Notes, including $250,000 to Malcolm G. Chace,
III, a director and principal stockholder; (ii) approximately $290,000 to
repay all of the Company's outstanding bank indebtedness; (iii) approximately
$1,400,000 for research and development expenses for product modifications to
support multiple platforms, provide device independence and increase
modularity to speed enhancement, and for external contracting of general and
vertical market-specific software enhancements; (iv) approximately $850,000
for the expansion of the Company's products to address the client/server
market; (v) approximately $1,500,000 to further develop and enhance the
Company's sales and marketing programs; and (vi) the balance for general
corporate purposes, including research and development, accrued interest and
working capital. The following table summarizes the Company's estimated use
of the net proceeds:

<TABLE>
<CAPTION>
Approximate Approximate
Application of Proceeds Amount Percentage
------------------------------------------- ------------- -------------
<S> <C> <C>
Repayment of Bridge Notes ................. $1,500,000 23.8%
Repayment of bank indebtedness ............ 290,000 4.6
Research and development .................. 1,400,000 22.2
Product expansion for client/server market . 850,000 13.5
Sales and marketing ....................... 1,500,000 23.8
General corporate purposes ................ 760,000 12.1
------------- -------------
$6,300,000 100%
============= =============
</TABLE>

In the event the Underwriter exercises its over-allotment option in full,
the Company will receive an additional $1,044,000, after deduction of the
underwriting discounts and non-accountable expense allowance, and will
utilize those proceeds for general corporate purposes, including research and
development and working capital.

The Bridge Notes bear interest at the rate of 10% per annum and mature on
the earlier of: (i) the closing of a sale of securities or other financing of
the Company from which the Company or its subsidiary receives gross proceeds
of at least $2,500,000 or (ii) May 28, 1997, one year from the date of
issuance. The proceeds of the Bridge Notes were used (i) to repay
indebtedness in the principal amount of $85,000 to Malcolm G. Chace, III, a
director and principal stockholder; (ii) for research and development,
selling and customer support expenses; and (iii) for other general corporate
purposes. See "The Company -- Recent Bridge Financing."

The Company anticipates that the proceeds from the Offering, together with
projected cash flow from operations, will be sufficient to fund its
operations for at least 12 months from the date of this Prospectus.
Thereafter, the Company may need to raise additional funds. There can be no
assurance that additional financing will be available or if available will be
on favorable terms. If the Company is unable to obtain such additional
financing, the Company's ability to maintain its current level of operations
will be materially and adversely affected. See "Risk Factors -- Future
Capital Needs; Uncertainty of Additional Funding."

Pending application of the proceeds of the Offering, the Company intends
to invest the net proceeds in certificates of deposit, money market accounts,
United States government obligations or other short-term interest bearing
obligations of investment grade.

DIVIDEND POLICY

The Company has not declared or paid cash dividends on its Common Stock,
presently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. The payment of
future cash dividends by the Company on its Common Stock will be at the
discretion of the Board of Directors and will depend on its earnings,
financial condition, cash flows, capital requirements and other
considerations as the Board of Directors may consider relevant, including any
contractual prohibitions with respect to the payment of dividends.

16
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at June
30, 1996, actual, and as adjusted to give effect to the sale of the Units
offered hereby by the Company at an assumed initial public offering price of
$7.50 per Unit and the initial application of the net proceeds therefrom. See
"Use of Proceeds."

<TABLE>
<CAPTION>
June 30, 1996
----------------------------
Actual As Adjusted
(in thousands)
<S> <C> <C>
Current liabilities ......................................... $ 3,501 $ 1,847
---------- --------------
Total long-term debt, excluding current portion ............. $ 32 $ 32
---------- --------------
Stockholders' (Deficit) Equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized,
-0- outstanding ............................................ -- --
Common Stock, $.01 par value, 8,000,000 shares authorized (1),
1,511,865 shares issued, actual, and 3,645,199 shares, as
adjusted (2) ............................................... 15 36
Additional paid-in capital .................................. 10,600 16,879
Accumulated deficit ......................................... (11,256) (11,392)(3)
Less treasury stock (1,259 shares) ......................... (18) (18)
---------- --------------
Total stockholders' (deficit) equity ....................... (659) 5,505
---------- --------------
Total capitalization ....................................... $ 2,874 $ 7,384
========== ==============
</TABLE>

- ------
(1) The number of shares authorized was increased to 13,000,000, effective
August 16, 1996.

(2) Excludes 501,763 shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Stock Option Plan (the "1996 Plan"), the 1994
Directors Stock Option Plan (the "1994 Directors Plan") and certain
non-plan options. Options to purchase an aggregate of 248,351 shares of
Common Stock at an exercise price equal to $3.75 under the 1996 Plan,
options to purchase an aggregate of 1,014 shares of Common Stock at an
exercise price of $222 under the 1994 Directors Plan and non-plan options
to purchase an aggregate of 891 shares of Common Stock at exercise prices
ranging from $74 to $399.60 are outstanding as of August 1, 1996. See
"Management -- Executive Compensation --Stock Option Plans" and "--
Non-Plan Options."

(3) Includes non-recurring interest expense of $136,000 for the unamortized
portion of the original issue discount relating to the repayment of the
Bridge Notes.

17
<PAGE>

DILUTION

"Net tangible book value per share" represents the amount of total
tangible assets of the Company reduced by the amount of total liabilities and
divided by the number of shares of Common Stock outstanding. "Dilution"
represents the difference between the price per share to be paid by new
investors for the shares of Common Stock included in the Units issued in the
Offering and the pro forma net tangible book value per share as of June 30,
1996. At June 30, 1996, the net tangible book value of the Common Stock was
$(1,251,375) in the aggregate, or $(0.83) per share of Common Stock. After
giving effect to the sale of the shares of Common Stock included in the Units
offered hereby (at an assumed initial public offering price of $3.75 per
share, net of estimated underwriting discounts and Offering expenses, and
assuming no exercise of the Underwriter's over- allotment option), the pro
forma net tangible book value of the Common Stock as of June 30, 1996 would
have been $4,912,598 in the aggregate, or $1.34 per share. This represents an
immediate increase in net tangible book value of $2.17 per share of Common
Stock to existing stockholders and an immediate dilution per share of $2.41
to new investors purchasing shares of Common Stock in the Offering.

The following table illustrates the dilution per share as described above:

<TABLE>
<CAPTION>
Per Share %
---------------------- ------
<S> <C> <C> <C>
Assumed public offering price per share of Common
Stock ............................................... $3.75 100%
------
Net tangible book value per share of Common Stock
before the Offering ............................. $ (.83) (22)
Increase attributable to new investors ............. 2.17 58
--------- ------
Pro forma net tangible book value per share of Common
Stock after the Offering ........................... 1.34(1) 36
--------- ------
Dilution per share of Common Stock to new investors .. $2.41 64%
========= ======
</TABLE>

- ------
(1) If the Underwriter's over-allotment option is exercised in full, the pro
forma net tangible book value at June 30, 1996 after the Offering would
be approximately $5,956,598 or $1.49 per share (40%) and the dilution per
share to new investors would be approximately $2.26 (60%).

Based on the foregoing assumptions, the following table sets forth, as of
completion of the Offering, the number of shares purchased from the Company,
the total cash consideration paid to the Company and the average price per
share paid by the existing stockholders and by new investors purchasing
shares of Common Stock included in the Units in the Offering (at an assumed
initial public offering price of $3.75 per share):

<TABLE>
<CAPTION>
Shares of Common Total Average Price Per Share
Stock Acquired Consideration of Common Stock
------------------------ -------------------------- -----------------------
Number Percent Amount Percent
----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ................... 1,510,606 41% $ 9,391,617 54% $6.22
New Stockholders ........................ 2,133,334 59 8,000,000 46 $3.75
----------- --------- ------------- ---------
Total .............................. 3,643,940 100% $17,391,617 100%
=========== ========= ============= =========
</TABLE>

18
<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth selected financial data of the Company for
the two years ended June 30, 1995 and 1996. The data has been derived from
the audited financial statements of the Company appearing elsewhere herein.
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements, the notes thereto and other
financial and statistical information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------
1995 1996
----------- -----------
(in thousands, except
share and per share data)
<S> <C> <C>
Statement of Operations Data:
Net sales
Products ................................................ $ 3,126 $ 1,352
Services ................................................ 476 635
----------- -----------
Total net sales .................................... 3,602 1,987
Cost of sales
Products ................................................ 1,115 346
Services ................................................ 185 234
----------- -----------
Total cost of sales ................................ 1,300 580
----------- -----------
Gross profit ................................................. 2,302 1,407
Operating expenses
Selling expenses ........................................... 891 843
General and administrative expenses ........................ 2,034 2,058
Research and development expenses .......................... 1,756 1,713
Stock compensation expense (1) ............................. -- 744
----------- -----------
Total operating expense ............................ 4,681 5,358
----------- -----------
Loss from operations ....................................... (2,379) (3,951)
Interest expense, net ...................................... 92 190
----------- -----------
Loss before extraordinary gain ............................. (2,471) (4,141)
----------- -----------
Extraordinary gain on debt restructuring ................... -- 320
----------- -----------
Net Loss ................................................ $ (2,471) $ (3,821)
=========== ===========
Net Loss applicable to common stock:
Net loss ................................................ $ (2,471) $ (3,821)
Accrued dividends on preferred stock .................... (88) (109)
----------- -----------
$ (2,559) $ (3,930)
=========== ===========
Net loss per common share:
Net loss before extraordinary item ...................... $ (1.14) $ (1.88)
Extraordinary item ...................................... -- .14
----------- -----------
$ (1.14) $ (1.74)
=========== ===========
Weighted average shares of Common Stock(2) ................. 2,250,259 2,256,150
</TABLE>

<TABLE>
<CAPTION>
June 30,
------------------------
1995 1996
--------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital (deficiency) ............................. $ (625) $ (1,971)
Total assets ............................................. 2,527 2,874
Total liabilities ........................................ 2,353 3,533
Total mandatorily redeemable securities .................. 2,088 --
Total stockholders' deficit .............................. (1,914) (659)
</TABLE>
- ------
(1) Compensation award to a former officer, including $424,830 of non-cash
expenses associated with the fair value of the stock issued. See Note 14
to the Financial Statements.
(2) Computed using the weighted average number of shares of Common Stock
outstanding during the period and other potentially dilutive instruments
issued at prices below the assumed initial public offering price during
the twelve month period prior to the date of effectiveness of the
Registration Statement of which this Prospectus forms a part. See Note 1
to the Financial Statements.
19
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company's sales consist of sales of products and services. Products
sold by the Company consist of COLD systems, software and hardgoods including
replacement disk drives, subassemblies and miscellaneous peripherals.
Services rendered by the Company include post-installation maintenance and
support. The Company recognizes revenue from customers upon installation of
COLD systems and, in the case of COLD systems installed for evaluation, upon
acceptance by such customers of the products. The Company sells extended
service contracts on the majority of the products it sells. Such contracts
are one year in duration with payments received either annually in advance of
the commencement of the contract or quarterly in advance. The Company
recognizes revenue from service contracts on a straight line basis over the
term of the contract. The unearned portion of the service revenue is
reflected as deferred revenue. As of June 30, 1996, the Company had deferred
revenue in the amount of $448,492.

The Company's operating results have in the past and may in the future
fluctuate significantly depending upon a variety of factors which vary
substantially over time, including industry conditions; the timing of orders
from customers; the timing of new product introductions by the Company and
competitors; customer acceleration, cancellation or delay of shipments; the
length of sales cycles; the level and timing of selling, general and
administrative and research and development expenses; specific feature needs
of customers; and production delays. A substantial portion of the Company's
quarterly revenues are derived from the sale of a relatively small number of
COLD systems which range in price from approximately $150,000 to $900,000. As
a result, the timing of recognition of revenue from a single product order
has in the past and may in the future have a significant impact on the
Company's net sales and operating results for particular financial periods.
This volatility is counter balanced by the increase in sales of annual
service contracts which generally accompanies an increase in systems sales.
The revenue from service contracts is recognized on a straight line basis
over the term of the contract.

The Company's primary operating expenses include selling expenses, general
and administrative expenses and research and development expenses. General
and administrative expenses consist primarily of employee compensation and
customer support expenses. Research and development expenses include
compensation paid to internal research and development staff members and
expenses incurred in connection with the retention of independent research
and development consultants. The Company utilizes its own employees for
research and development functions except in certain circumstances involving
product enhancements. In those circumstances, the Company regularly retains
independent experts to consult and design new software modules which are
subsequently evaluated and tested by the Company's internal research and
development staff. Upon successful testing of such product enhancements, the
Company's internal staff integrates the new products with the Company's
existing COLD systems and products. See "Business -- Research and
Development."

The Company has historically incurred net losses and anticipates that
further net losses will be incurred prior to the time, if ever, that the
Company achieves profitability. However, the Company has recently taken
certain steps intended to limit the incurrence of future net losses. Such
steps include: (i) the retention in January 1996 of Hector D. Wiltshire as
interim President and Chief Executive Officer and the subsequent hiring in
August 1996 of Robert H. Stone as President and Chief Executive Officer; (ii)
the Recapitalization (see "The Company--Recapitalization"); (iii) the
November l995 reduction in the Company's workforce from 52 to 30 full-time
employees as of June 30, 1996; (iv) other reductions in overhead costs and
expenses; and (v) the administration of tighter internal controls with
respect to preservation of the integrity of the Company's proprietary
software products. The immediate effect realized by the implementation of
these measures was to reduce average monthly operating expenses during the
period from January through June 1996 to approximately $317,000, exclusive of
the cost associated with shares granted to an officer in January 1996. This
represents a 34% reduction in the average monthly operating expenses as
compared to those incurred during the first half of fiscal 1996. During such
period, average operating expenses approximated $481,000 per month. While no
assurance can be given that such steps will be sufficient to limit losses
which may be incurred in the future, the Company believes that such steps,
when fully implemented, may enable the Company to realize improved operating

20
<PAGE>

results. The Company does not believe that these steps, particularly the
reduction in the workforce, have to date or will in the future materially
adversely impact the Company's revenues and earnings. Of the 22 employees
terminated, four were salespersons, five were field support personnel, eight
were product development personnel and five were administrative staff. Many
of the sales and field support employees had been hired early in 1995 in
anticipation of increased sales which did not materialize. The terminated
product development personnel were working on new products which the Company
determined would not be completed. There is no indication that these
terminations will materially adversely affect new product development in the
long term. See "Business -- Future Development Projects." As a result of the
foregoing, the reduction in workforce has not materially adversely affected
the Company's operations.

RESULTS OF OPERATIONS

YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995

The following table presents certain items from the Company's Statement of
Operations, and such amounts as percentages of net sales, for the periods
indicated.

<TABLE>
<CAPTION>
Year Ended June 30, 1995 Year Ended June 30, 1996
------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales
Products .................................. $ 3,126,022 87% $ 1,352,408 68%
Services .................................. 476,039 13 634,500 32
-------------- ------- -------------- --------
Total net sales ........................... 3,602,061 100 1,986,908 100
Cost of sales
Products .................................. 1,114,963 31 346,157 17
Services .................................. 184,744 5 234,229 12
-------------- ------- -------------- --------
Total cost of sales ....................... 1,299,707 36 580,386 29
-------------- ------- -------------- --------
Gross profit ................................. 2,302,354 64 1,406,522 71
Operating expenses
Selling ................................... 890,868 25 843,312 43
General and administrative ................ 2,033,851 56 2,058,005 104
Research and development .................. 1,755,891 49 1,713,094 86
Stock compensation ........................ -- -- 744,000 37
-------------- ------- -------------- --------
Total operating expenses .................. 4,680,610 130 5,358,411 270
Interest expense, net ........................ 92,319 3 189,939 10
-------------- ------- -------------- --------
Loss before extraordinary gain ............... $(2,470,575) (69)% $(4,141,828) (208)
Extraordinary gain on debt
restructuring ............................. -- -- 320,387 16
------------ ------- -------------- --------
Net loss ..................................... $(2,470,575) (69)% $(3,821,441) (192)%
============== ======= ============== ========
</TABLE>

Net sales. Net sales decreased from $3,602,061 for the year ended June 30,
1995 to $1,986,908 for the year ended June 30, 1996. This decrease was primarily
the result of a delay in completion of software enhancements which resulted in
installation postponements in the second half of fiscal 1996. Although these
enhancements have now been substantially completed, the installation
postponements are expected to continue into the first half of fiscal 1997. The
overall impact of such delays upon current market share, maintenance income and
other associated fees is expected to be negligible. See "Risk Factors --
Variable Operating Results; Lengthy Sales Cycle." Net product and service sales
were $3,126,022 and $476,039, respectively, for the year ended June 30, 1995
compared to $1,352,408 and $634,500 for the year ended June 30, 1996. Products
sales decreased 57% during the year ended June 30, 1996 compared to the year
ended June 30, 1995. Service revenue, which increases as the Company's base of
installed units expands, was 33% higher than in the corresponding prior period.
Approximately half of this increase is attributable to an ODSM consulting
contract in the amount of $66,000 that was completed and fully recognized in the
second quarter of fiscal 1996. Service revenue exclusive of revenue generated by
this consulting contract increased 19% over the corresponding period.

21
<PAGE>

Cost of sales. Cost of sales includes component costs, firmware license
costs, labor, travel and certain overhead costs. Costs of sales in the
aggregate decreased 55% from $1,299,707 for the year ended June 30, 1995 to
$580,386 for the year ended June 30, 1996, primarily due to the reduced
volume of sales. In addition, cost of sales as a percentage of sales
decreased from 36% for the year ended June 30, 1995 to 29% for the year ended
June 30, 1996. This decrease was due to negotiated price reductions for the
purchase of the Company's optical hardware and from the sale of higher margin
systems.

The cost of product sales decreased 69% from $1,114,963 for the year ended
June 30, 1995 to $346,157 for the year ended June 30, 1996 due to the
decrease in product sales. Cost of product sales as a percentage of product
sales decreased from 36% for the year ended June 30, 1995 to 26% for the year
ended June 30, 1996, a trend that has continued from fiscal 1994, when the
cost of product sales as a percentage of product sales was 72% due to
inventory write-downs and high installation start-up costs. It should not be
assumed, however, that this trend will continue. The cost of services
increased by 27% from $184,744 for the year ended June 30, 1995 to $234,229
for the year ended June 30, 1996 due to additional service contracts required
to support increased service revenues. Cost of services as a percentage of
service revenues decreased from 39% for the year ended June 30, 1995 to 37%
for the year ended June 30, 1996.

Selling expenses. Selling expenses decreased 5% from $890,868 for the year
ended June 30, 1995 to $843,312 for the year ended June 30, 1996. This
decrease was due to the net difference between lower sales commissions, the
reduction of marketing activity and staffing in the second half of fiscal
1996 and increased trade show activity in the first quarter of fiscal 1996
and higher personnel and non-recurring recruiting costs incurred in
connection with the hiring of a vice president of sales.

General and administrative expenses. General and administrative expenses
consist of administrative expenses and customer support expenses.
Administrative expenses increased 10% from $1,103,287 for the year ended June
30, 1995 to $1,216,142 for the year ended June 30, 1996. This increase was
primarily due to costs incurred in connection with a bridge financing and a
proposed initial public offering of Common Stock that was abandoned in
December 1995, increased salary expense from the hiring of a vice president
of Business Operations in January 1995, and costs incurred in connection with
the Recapitalization. These amounts were offset by the termination of two
vice presidents in November 1995 and February 1996 and significantly reduced
administrative staffing in the second half of fiscal 1996.

Customer support expenses decreased 10% from $930,564 for the year ended
June 30, 1995 to $841,863 for the year ended June 30, 1996. This decrease was
primarily the result of lower travel expenses resulting from a geographical
redistribution of service engineers to locations with higher demand for
service personnel.

Research and development expenses. Research and development expenses
decreased 2% from $1,755,891 for the year ended June 30, 1995 to $1,713,094
for the year ended June 30, 1996. This decrease reflected a temporary
reduction in consulting expenses resulting from a change in the primary
independent consulting firm retained by the Company. These costs were offset
by payroll increases necessary to maintain competitive salaries for personnel
in the research and development area and increased depreciation incurred as a
result of computer equipment upgrades. The increase in salary expense was
partially offset by a 31% staffing reduction in November 1995, although the
net decrease in wages was only $31,000 because of the hiring and termination
of employees during the year ended June 30, 1996, short term employment
durations and the reclassification of a customer service employee to research
and development.

Stock compensation expense. The Company incurred a one-time expense
relating to the issuance of 416,500 shares of Common Stock to an officer of
the Company. Compensation expense in the aggregate amount of $744,000 was
recognized in conjunction with this transaction, including a non-cash charge
of $424,830, representing the fair value of the Common Stock as determined by
independent appraisal. The difference represents an accrual of an agreed upon
reimbursement of the potential tax cost of the stock grant to the officer.
See "Certain Transactions -- Transactions with Mr. Wiltshire."

Interest expense, net. Interest expense, net, increased 106% from $92,319
for the year ended June 30, 1995 to $189,939 for the year ended June 30,
1996. Such expense increased as a result of borrowings under a secured loan,
two bridge loans, accretion on warrants issued in connection with the second
bridge loan and an increase in secured borrowings during the 1995 period.
Interest expense relating to capital leases decreased from $34,885 for the
year ended June 30, 1995 to $28,830 for the year ended June 30, 1996.

22
<PAGE>

Net loss. As a result of the foregoing, the Company's net loss increased
from $(2,470,575) for the year ended June 30, 1995 to $(3,821,441) for the
year ended June 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

The Company had a working capital deficit of $624,608 at June 30, 1995 as
compared to a working capital deficit of $1,971,090 at June 30, 1996.

Total cash used by operating activities during the year ended June 30,
1996 was $2,366,193. The Company's net loss of $3,821,441 included non-cash
expenses aggregating $769,511, the largest of which was the $424,830 charge
associated with the fair value of the stock granted to an officer of the
Company. The principal sources of cash from operating activities were
increases in accounts payable of $228,590, accrued expenses of $208,913, and
deferred revenue of $78,384. The principal use of cash was the reduction in
trade accounts receivable of $399,300 and inventory of $78,384.

Cash used in investing activities for the year ended June 30, 1996 was
$113,084. Additions to fixed assets in the amount of $103,604, and
investments in other assets in the amount of $9,480 constituted the major use
of cash in investing activities.

The Company's operations for fiscal 1996 were funded primarily through
borrowings and equity investments. During this period, the Company raised
approximately $2,668,415 (gross proceeds) from Malcolm G. Chace, III, a
director and principal stockholder, and certain outside investors consisting
of (i) a bridge loan in September 1995 (the "September Bridge Loan") by Mr.
Chace and other private investors (the "September Bridge Loan Investors") in
the amount of $1,300,000 in anticipation of an initial public offering in
December 1995 that was subsequently abandoned, and (ii) $2,468,415 in
borrowings from Mr. Chace. See "Management," "Principal Stockholders" and
"Certain Transactions -- Debt Transactions with Mr. Chace and his
Affiliates." During that period, the Company also settled an employment bonus
obligation in the amount of $180,000 in exchange for 7,500 shares of Common
Stock, and certain consulting fees and earned sales commissions in the
aggregate approximate amount of $20,807 in exchange for 5,290 shares of
Common Stock. See "Management -- Employment Agreements."

As of June 30, 1996, the Company had indebtedness outstanding under a
short-term secured bank loan in the amount of $290,000. The loan, originally in
the amount of $500,000, was subject to a $70,000 principal reduction in
September 1994 and further reductions of principal in the amount of $10,000 each
month thereafter until maturity. The loan was amended effective June 26, 1996 to
increase the monthly payments to $20,000 commencing July 31, 1996 and to extend
the maturity from June 30, 1996 to September 15, 1996. On September 18, 1996,
the bank agreed to further amend the loan extending the maturity date to
October, 31, 1996. The loan is secured by substantially all of the Company's
assets. Borrowings outstanding under the loan accrue interest at a rate equal to
the prime rate plus 2% (10.25% as of June 30, 1996). The Company intends to
repay the balance of this indebtedness with a portion of the net proceeds of the
Offering. See "Use of Proceeds."

In January 1996, the holders of the Company's Series A 10% Cumulative
Convertible Preferred Stock, $.01 par value (the "Preferred Stock"),
converted all of the Company's issued and outstanding Preferred Stock and
accrued but unpaid Preferred Stock dividends in the aggregate approximate
amount of $2,200,000 to Common Stock and effected the reverse stock split. In
connection with the Recapitalization, the Company purchased 897 treasury
shares for a cost of $85,274. Of this amount, $915, representing the fair
value of the 897 shares acquired, was charged to treasury stock and $84,359,
representing the excess of the amount paid over the fair value of the shares,
was charged to general and administrative expenses. The fair value of the
shares acquired was determined by independent appraisal. Additionally, the
Company reached an agreement with Mr. Chace to convert all of the then
outstanding indebtedness of the Company held by him, excluding the September
Bridge Loan, in the amount of $1,335,415 into 426,279 shares of Common Stock.

During January and February 1996, the Company also reached agreement with
the September Bridge Loan Investors, including Mr. Chace, to convert bridge
notes in the principal amount of $1,300,000 into 614,733 shares of Common
Stock.

The Company intends to utilize the net proceeds from the Offering for (i)
repayment of the Bridge Notes in the approximate amount of $1,500,000; (ii)
repayment of bank indebtedness in the approximate amount of

23
<PAGE>

$290,000; (iii) approximately $1,400,000 for research and development for
product modifications to support multiple platforms, provide device
independence and increase modularity to speed enhancement, and for external
contracting of general and vertical market-specific software enhancements;
(iv) approximately $850,000 for the expansion of the Company's products to
address the client/server market; (v) approximately $1,500,000 to further
develop and enhance the Company's sales and marketing programs; and (vi) the
balance for general corporate purposes, including research and development,
accrued interest and working capital. See "Use of Proceeds" and "Certain
Transactions -- Debt Transactions with Mr. Chace and his Affiliates." The
Company has certain obligations under capital and operating leases. See Note
8 to the Financial Statements.

The Company believes that the estimated net proceeds of the Offering,
together with funds generated from operations, will be sufficient to meet the
Company's working capital requirements for a period of at least twelve months
from the date of this Prospectus. Thereafter, additional funds will be
required. If the Company has insufficient funds from operations, it will be
required to seek additional debt or equity financing. There can be no
assurance that such additional funds can be obtained on acceptable terms, if
at all. If additional funds are not available, the Company's business will be
materially adversely affected. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding" and the Financial Statements and notes
thereto.

The Company has suffered recurring losses from operations, has negative
cash flows from operating activities and has a working capital deficiency. As
a result, the Company's independent auditors in their report dated August 2,
1996 on the Financial Statements have included an explanatory paragraph that
describes factors raising substantial doubt about the Company's ability to
continue as a going concern. See "Risk Factors -- Working Capital
Deficiencies; History of Losses; Accumulated Deficit; Ability to Continue as
a Going Concern."

At June 30, 1996, the Company had Federal and state net operating loss
("NOL") carryforwards available to reduce any future taxable income in the
approximate amount of $8,100,000, which expire in various amounts between the
years 2002 and 2010, if not previously utilized. In the event of an ownership
change, as defined in Section 382 of the Internal Revenue Code, utilization
of NOL carryforwards in periods following the ownership change can be
significantly limited. Management believes that the Company has incurred
several changes of ownership under these rules. As a result, utilization of
the NOL carryforwards is subject to various limitations, depending upon the
year in which the NOL originated. As of June 30, 1996, management estimates
that approximately $5,100,000 of the Company's Federal NOL carryforwards will
be available to offset taxable income that may be generated within the
carryforward period. Of this amount, approximately $2,400,000 is available
for future utilization without limitation and the remaining $2,700,000 is
subject to a limitation of approximately $180,000 of utilization per year.
However, because the underlying calculations are complex and are subject to
review by the Internal Revenue Service, these limitations could be adjusted
at a later date. In addition, upon consummation of the Offering, it is
expected that another change of ownership will occur. As a result of this
change, management expects that all prior limitations will remain in place,
except that additional limitations will be imposed on the $2,400,000 NOL
carryforward previously available for utilization without limitation, as
described above. Management estimates that the $2,400,000 NOL carryforward
will be subject to a limitation of approximately $150,000 of utilization per
year, limiting expected total utilization during the carryforward period to
$2,250,000.

The Company believes that its current corporate infrastructure can support
significant increases in sales without proportionate increases in costs.
However, there can be no assurances that sales will increase or that any cost
advantage will result.

SEASONALITY AND INFLATION

To date, seasonality and inflation have not had a material effect on the
Company's operations.

24
<PAGE>

BUSINESS

The Company develops, assembles, sells and services optical data storage
systems consisting of integrated computer hardware and software for the
archival storage and retrieval of massive quantities of computer-generated
information. The Company believes that its proprietary computer output to
laser disk ("COLD") data storage systems provide a faster, more reliable and
more economical method of storing vast quantities of computer-generated data
than is generally available from other COLD systems or from traditional data
storage methods. The Company's optical data storage systems, which are
marketed under the brand names OAS and GIGAPAGE, are sold principally to
large organizations that have the need to store and retrieve large quantities
of computer-generated data. Currently, COLD systems developed and
manufactured by the Company are used by companies such as Pershing
Securities, a division of Donaldson Lufkin & Jenrette Inc., Securities
Industry Automation Corporation, Prudential Securities Incorporated, Bank of
Boston and Nationwide Mutual Insurance Company.

INDUSTRY OVERVIEW

Each of these traditional storage methods has inherent disadvantages as an
archival storage medium. Magnetic disk is currently expensive and subject to
data loss upon failure. Paper is a manually cumbersome, bulky and expensive
means of long-term storage. Magnetic tape provides response times as long as
15 minutes when storing or retrieving data even when mounting is automated
using robotics. COM is cumbersome to access and time-consuming to generate.
The storage alternatives of paper, magnetic tape, and COM have nonetheless
been used for archiving because of the high cost of magnetic disk or DASD,
traditionally the most popular storage method.

THE COMPANY'S SOLUTION: PRODUCTS AND SERVICES

The Company's COLD systems permit both the storage of archival data in a
less expensive manner than with DASD, paper or COM, and quicker retrieval of
such data than is possible with magnetic tape, paper or COM. When combined
with the Company's software, the result is an integrated hardware and
software solution which economically addresses archival storage and on-line
retrieval of large quantities of computer-generated data. The Company
believes its solution also achieves several technological and competitive
advantages which are not available in other COLD systems. As compared to
other COLD systems, the Company's patented directory structure and hardware
data compression capability enables more data to be stored on, and retrieved
quickly from, an optical disk, thereby maximizing the performance of the
user's system while reducing the cost of storage. The Company's integrated
COLD systems enable an end user to retrieve and view documents or reports
based on a report index, which speeds access to data. The GIGAPAGE software
is designed specifically to optimize access to robotic disk storage systems,
unlike that of most competing systems. It employs sophisticated caching to
make speed of access to the data comparable to that of magnetic disk, but at
a much lower cost of storage. The Company has also developed a system-level
"driver" for optical disk robotics called ODSM.

BUSINESS STRATEGY

The Company's objective is to become a leading provider of COLD systems.
To achieve this objective, the Company is pursuing a business strategy which
includes the following principal elements: (i) identify and pursue customers
with large CPUs and massive document storage and retrieval requirements; (ii)
establish strategic alliances; (iii) develop a network of international
resellers; and (iv) exploit opportunities in growth segments of the COLD
systems market.

25
<PAGE>

Identify and Pursue Customers with Large CPUs and Massive Document Storage
and Retrieval Requirements. The Company's sales and marketing efforts are
focused primarily towards business entities that are mandated by government
regulation to maintain extensive data archives. Management believes that such
sales and marketing efforts will encourage the purchase and use of the
Company's products by such businesses. To capitalize on the acceptance of its
products by businesses that are generally recognized as leaders with respect
to the early use of new information technologies, the Company will continue
to rely upon successful product installations for strategic industry-specific
references to foster follow-on sales.

Establish Strategic Alliances. The Company is pursuing strategic alliances
with certain software companies. The Company believes that the establishment
of collaborative relationships with such companies and the integration of
products produced by the Company and such strategic partners will create
competitive advantages for the Company. Such competitive advantages include
the opportunity to access the strategic partner's existing and potential
customer base and the development of products which will provide
technological advantages for end users. The Company believes strategic
alliances will give the Company greater access to the approximately 2,000
IBM-compatible mainframe sites in North America and others throughout the
world.

Develop a Network of International Resellers. The Company believes the
number of IBM-compatible mainframe sites internationally equals or exceeds
the number of sites in the United States. The Company believes that
substantially all of these sites are potential users of COLD systems. It is
not practical, however, for the Company at this stage of its development to
attempt to reach these sites directly as a result of the geographical
dispersion, language barriers and costs associated with such effort. To reach
these potential customers, the Company plans to qualify international
resellers to distribute its products. By expanding its international resale
distribution network, the Company believes it will be in a position to pursue
opportunities arising in the international COLD systems market. GIGAPAGE has
already been made bilingual for a Canadian installation, and can be adapted
readily to other languages if needed.

Exploit Opportunities in Growth Segments of the COLD Systems Market. The
Company's long-term strategic direction is to further develop its software
products towards an open architecture multiplatform implementation. The
Company intends to structure its software products into functional modules
which may be linked together over a network, thereby permitting such products
to run on any computing platform found in a large enterprise. Such
developments will create a transparent, consistent user interface across
platforms and allow the specific functions within the product to be
distributed across the enterprise in a client/server configuration. This will
allow each function, or multiple functions such as data extraction and
collection, to occur at the locations within the enterprise that are
operationally most efficient. For example, the storage component may reside
on a mainframe in a data center with all of the attendant security,
management and back-up systems, while the data collection and extraction
modules may be running on a dedicated server in a payment receipt department
at the same time customer service agents are accessing the data from PCs in a
telemarketing center.

PRODUCTS

COLD Systems

Computer output to laser disk data storage systems are high-density
optical disk storage systems that store, index and retrieve formatted
computer output. COLD systems consist of a controller, an optical disk
subsystem and application software.

Hardware Products

The hardware portion of the Company's solution, the OAS, is a high
capacity, mainframe channel-attached hybrid magnetic/optical disk storage
system, composed of the OAS controller and an optical disk robotic
"autochanger." The OAS controller can direct various types and models of
robotic autochanger systems, which are manufactured by a number of vendors,
commanding such robots to mount and dismount disks automatically as needed in
response to requests from the host software. These autochangers, which the
Company purchases from independent third party suppliers, are installed by
the Company as a part of the integrated system at the customer site.
Autochangers of varying capacities are available to meet the needs of the
marketplace, for storage requirements from 166 million pages to multiple tens
of billions of pages.

26
<PAGE>

Autochangers. The entry-level autochanger supports customers with
relatively modest storage volumes. When used in conjunction with the
Company's data compression technology, the capacity of this autochanger is
significantly enlarged. In such instance, the entry-level autochanger will
have the capacity to store over 166 million typical report pages.

Because the optical drives housed within the Company's most commonly
installed autochangers are American National Standards Institute
("ANSI")-standard 5 1/4 inch multifunction drives, the optical disk platters
used within the autochanger may be a mixture of rewritable and write-once
("WORM") types. The rewritable disks are used to store those reports that do
not have to be retained for long time periods. The disks are then re-used
when the useful life of the reports has elapsed. WORM disks preclude
modification of data, as required for data such as securities industry
reports subject to the record retention rules of the Securities and Exchange
Commission.

Customer need for greater capacity is addressed by a field-upgradeable
family of autochangers. Middle- range requirements are accommodated by a
system which can store from 590 million to over 1 billion report pages in a
compact (3 foot by 3 foot) floor area, while large capacity needs are served
by the Company's largest system, which stores from 860 million to more than 2
1/2 billion pages. Multiple systems may be combined for even greater
capacity. The Company also provides 12 and 14 inch format WORM solutions.

The OAS Control Unit. The control unit of the OAS system is directly
attached to the mainframe via a conventional IBM-compatible interface to an
input-output ("I/O") channel of the IBM-compatible mainframe. The control
unit's dedicated I/O hardware passes data back and forth over the channel
between the mainframe and the optical disk autochanger at up to 3 megabytes
per second. The control unit is an intelligent storage management subsystem,
with self-contained software to track platter and file locations and automate
the movement of disks into and out of the optical disk drives within the
robotic autochanger.

The OAS control unit contains a cache buffer (a large bank of RAM used for
temporary storage when transferring data from one device to another) to
permit data to be exchanged rapidly between the mainframe and the optical
disk drives. In addition, the control unit performs data compression using a
patented hardware-based implementation of the Lempel-Ziv compression
algorithm. When this hardware-based compression is combined with GIGAPAGE's
host-based software data compression, compound compression ratios of 7.5:1
and higher are achieved. The robustness of the compression capability is
illustrated by the fact that on reports containing redundant data, some users
have achieved compression ratios as high as 40:1. While not reflective of
typical reports, this high compression illustrates the adaptive capabilities
of the dual data compression architecture of GIGAPAGE and the OAS.

Software Products

During the last three years, the Company has developed an application
software product for IBM mainframe systems and GIGAPAGE, which can be
installed in conjunction with the OAS.

GIGAPAGE is an end-user application for report storage and retrieval.
GIGAPAGE stores and retrieves computer-generated reports (such as customer
statements) on various combinations of DASD and optical disk storage. This
enables organizations to eliminate their existing COM systems and reduce
staff used for manual retrieval of microfilm, microfiche and paper reports.
Based on information provided by its customers, the Company believes that a
user of a COLD system developed by the Company may recover its investment in
GIGAPAGE within a period as short as one year after the installation of such
COLD system. Such a return may be realized as a result of the low cost per
megabyte achievable through use of the OAS autochanger system and its
hardware data compression capability. GIGAPAGE also provides its users with
the ability to access report data efficiently, by displaying a retrieved
document based upon criteria established by the user. The Company believes
that this creates competitive advantages for end users who must quickly
respond to customer inquiries. GIGAPAGE changes report access from a slow,
cumbersome, manually-intensive process to a fast, near-line computer-based
process. The Company has successfully installed GIGAPAGE with the OAS at
Pershing Securities (a division of Donaldson Lufkin & Jenrette Inc.),
Securities Industry Automation Corporation, Prudential Securities
Incorporated, Bank of Boston and Nationwide Mutual Insurance Company.

27
<PAGE>

Customer Support and Service

In addition to being a source of revenue generation, the Company believes
that its approach to customer service and support has been and will continue
to be a significant factor in the market acceptance of its products. As a
result, the Company intends to expand its customer service and technical
support organization. Because most of the Company's products are used in
complex, large-scale mainframe data centers, the successful implementation
and utilization of the Company's products substantially depends on the
Company providing a high level of customer service, training and support.
Consequently, the Company typically allocates substantial resources to
customer installations, particularly in the first few weeks before and the
first several weeks after a new installation. These resources include field
support personnel who assess the systems operating environment of the
customer prior to installation, install and test the hardware, support the
hardware and coordinate the efforts of third-party service providers that
service the Company's installed base of systems; systems engineering
personnel who install and configure the software components of the Company's
systems, assist the customer in assuring that the other elements of the
customer's data center properly interface with the Company's system, assist
the customer in defining reports to be stored on the Company's system and in
supporting the Company's software; training personnel who train the
customer's data center managers and users on the operation and use of the
Company's system; a 24-hour help desk to field all customer support and
service inquiries; and third-party service organizations with whom the
Company contracts to provide on-site customer response for hardware-related
issues.

In the years ended June 30, 1995 and 1996, service revenue generated from
the post-sale maintenance of COLD systems accounted for approximately 13% and
32%, respectively, of the Company's total revenues. Substantially all of the
Company's customers have elected to extend their service contracts with the
Company beyond the one-year period that is customarily afforded to customers
at the time of installation of new products. The Company anticipates that its
service-generated revenues will continue to increase as the number of COLD
system installations increases.

As of August 1, 1996, the customer service and support group consisted of
8 employees, 4 of whom are in-house and the remainder in the field. These
personnel provide support for the engineers maintaining customer equipment in
the field and provide the Company with an opportunity to recommend future
system sales to such customers.

Future Development Projects

The Company plans to continue the enhancement of its hardware and software
product offerings in response to both customer feedback regarding desired
product capabilities and analysis of competitive offerings to keep pace with
technological advances. Enhancements recently implemented in the GIGAPAGE
system include improvements to its indexing capabilities and increasing the
speed with which reports can be captured by the system. Increasing retrieval
performance to expand the range of applications into which the system may be
introduced is next on the plan, along with enhancement of the types of
reports supported and expansion of the system's demand print capabilities.

The Company intends to further extend its mainframe-based GIGAPAGE product
by creating strategic alliances with other companies which produce
complementary products. For example, the GIGAPAGE system's report management
capability will be improved through addition of support for report formats
used in insurance industry applications. The mechanism for increasing the
GIGAPAGE system's on-line transaction performance will be through the
integration of the Company's newly-available RAID (redundant array of
independent disks) technology, which capitalizes on the cost benefits
achievable through the OAS controller's integrated hardware data compression
capability. The OAS is also expected to undergo continuous, incremental
product improvement, focused on increasing its aggregate data throughout,
increasing the numbers and types of optical drives and autochangers
supported, improving its mainframe fiber optic (ESCON) connectivity options,
and enhancing its RAID system's configuration options and capacity.

Further enhancements and evolution of the Company's product are
anticipated to occur in connection with the Company's intended development of
its software products to move such products towards an open architecture
multiplatform implementation, to allow the functions within the product to be
distributed across the enterprise in a client/server configuration.

28
<PAGE>

The Company estimates that such developments will cost approximately
$1,400,000, which will be financed with a portion of the net proceeds of the
Offering. See "Risk Factors -- Future Capital Needs; Uncertainty of
Additional Funding," "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

MARKETING

The market for COLD systems is segmented into the mainframe, PC
(stand-alone or LAN-based), client/server and CD-ROM markets. Within each
market segment, product offerings may be divided into two categories: (i)
COLD software packages and (ii) COLD turnkey systems. COLD turnkey systems
are generally comprised of COLD software bundled with a controller and an
optical disk system. Generally, the highest priced COLD systems are those
that are mainframe or client/server based. Additionally, the market for COLD
systems includes a revenue component derived from the service and support of
COLD systems products.

A 1994 industry report published by Frost & Sullivan, a professional
market research firm, estimated that domestic COLD systems revenues,
including revenues for software, turnkey system and service support, would
approximate $755 million in 1999. In 1989, the domestic market for COLD
systems amounted only to $24.7 million. Growth in the market has been
fostered by an increasing awareness of the performance and economic benefits
which may be achieved through the use of COLD systems products. The report
predicted that growth in the domestic COLD systems market during the 1994 to
1999 period would be enhanced by the further development of the client/server
and CD-ROM segments of the market. The report further predicted that
client/server based COLD systems would become the dominant architecture in
1999, outpacing mainframe-based COLD systems sales. Additionally, the report
forecasted that COLD system suppliers with the capability to provide post-
installation service support would benefit as the number of installed system
units increases. Participation in the service side of the business not only
provides COLD system suppliers with incremental revenue sources but also
positions such COLD system suppliers to capitalize on future systems sales
opportunities with those customers for whom the supplier provides system
support.

The Company advertises and markets its products and services through
direct mailings, participation and exhibition of products at industry trade
shows, personal solicitations at businesses which have been identified as
likely purchasers of the Company's products and industry referrals. The
Company believes that its customer support function, which provides pre- and
post-installation training and services to end users, is a significant factor
in the market acceptance of its products. The Company intends to continue to
expand its customer support function as the number of system installations
increase.

To explore opportunities in market segments in which it does not currently
compete, the Company has begun to create strategic business alliances and
intends to further develop certain of its software products to facilitate
integration with those of its corporate partners. To access international
markets, the Company plans to qualify international resellers to distribute
its products. To capitalize on opportunities arising in the client/server
segment of the COLD systems market, the Company intends to reconfigure its
software products into functional modules. Additionally, the Company is
establishing collaborative relationships with certain software companies to
market its products more effectively and gain greater access and credibility
with prospective customers.

CUSTOMERS

Sales to Nationwide Mutual Insurance Company, Bank of Boston Corporation
Technology Services and Bell Sygma, Inc. accounted for 35%, 22% and 11%,
respectively, of the Company's total net sales in the year ended June 30,
1996. Sales to Bank of Boston Corporation Technology Services Incorporated,
Chevron Information Technologies, Inc., Securities Industry Automation
Corporation, Prudential Securities Incorporated, and Bell Sygma, Inc.
accounted for 18%, 16%, 15%, 14% and 10%, respectively, of the total net
sales for the year ended June 30, 1995.

Representative purchasers of the Company's GIGAPAGE product include
Pershing Securities, a division of Donaldson Lufkin & Jenrette Inc.,
Securities Industry Automation Corporation, Bank of Boston and Nationwide
Mutual Insurance Company. While certain of these customers have purchased
multiple systems, there can be no assurance that they will purchase the
Company's products in the future. Future sales from existing customers may
occur as a result of a need for additional storage capacity, media accounts
and hardware/software maintenance. See "Risk Factors -- Dependence on
Significant Customers."

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<PAGE>

COMPETITION

The computer data storage and retrieval industry is highly competitive and
the Company expects this level of competition to intensify. There are certain
competitors of the Company that have substantially greater financial,
marketing, development, technological and production resources than the
Company. The Company's primary competitors in the GIGAPAGE market are IBM
Corporation, FileTek Corporation, Eastman Kodak Company, Data/Ware
Corporation, Anacomp, Inc., Mobius Management Systems, Inc., Computer
Associates International, Inc., RSD America, Inc. and Network Imaging Systems
Corp. The Company believes that participants in the data storage and
retrieval market compete on the basis of a number of factors including vendor
and product reputation, system features, product quality, performance and
price, and quality of customer support services and training. The Company
positions itself to compete effectively with its competitors by offering what
it believes is superior customer service and technical support in connection
with hardware and software products which provide certain technological and
user application advantages. See "Risk Factors -- Competition."

INTELLECTUAL PROPERTY

Although the Company believes that its continued success will depend
primarily on its continuing product innovation, sales, marketing and
technical expertise, product support and customer relations, the Company
believes it also needs to protect the proprietary technology contained in its
products. The Company holds three United States patents on its directory
structure and its implementation of hardware data compression. The Company
relies primarily on a combination of copyright, trademark, trade secret laws
and contractual provisions to establish and protect proprietary rights in its
products. The Company typically enters into confidentiality and/or license
agreements with its employees, strategic partners, customers and suppliers
and limits access to and distribution of its proprietary information. Despite
these precautions, it may be possible for unauthorized third parties to copy
certain portions of the Company's products, reverse engineer or otherwise
obtain and use information the Company regards as proprietary.

The Company is subject to the risk of litigation alleging infringement of
third-party intellectual property rights. There can be no assurance that
third parties will not assert infringement claims against the Company in the
future with respect to current or future products. Any such assertion, if
found to be true and legally enforceable, could require the Company to pay
damages and could require the Company to develop non-infringing technology or
acquire licenses of technology that is the subject of the asserted
infringement, resulting in product delays, increased costs, or both. See
"Risk Factors--Protection of Intellectual Property."

ASSEMBLY

Assembly of the Company's OAS is done at the Company's facility in North
Kingstown, Rhode Island. The Company designs and assembles portions of its
COLD systems which are then integrated at the Company's plant with optical
disk autochanger systems manufactured by a variety of third parties.
Production of the OAS entails testing, assembling and integrating standard
and Company-designed components and subassemblies built by and purchased from
independent suppliers. The Company has one full-time hardware engineer and
two manufacturing personnel. The Company configures and tests the
Company-built and third-party-supplied hardware and software in combinations
to meet a wide variety of customer requirements.

Although the Company generally uses standard parts and components for its
products, certain components, such as CPU boards, ESCON hardware and
high-density integrated circuits, are presently available only from single or
limited sources. The Company has no supply commitments with its vendors and
generally purchases components on a purchase order basis, as opposed to
entering into long-term procurement agreements with vendors. The Company has
generally been able to obtain adequate supplies of components in a timely
manner from current vendors or, when necessary to meet production needs, from
alternate vendors. The Company believes that alternative sources of supply
would not be difficult to develop over a short period of time but that an
interruption in supply or a significant increase in the price of these
components could adversely affect the Company's operating results and
business. See "Risk Factors--Reliance on Single or Limited Sources of
Supply."

RESEARCH AND DEVELOPMENT

The COLD market is characterized by rapid technological developments,
evolving industry standards, swift changes in customer requirements and
frequent new product introductions and enhancements. As a result, the

30
<PAGE>

Company devotes and intends to continue to devote substantial resources to
research and development to enhance its proprietary technology and knowledge.
The Company utilizes its own employees for research and development except in
certain circumstances involving product enhancements. In those circumstances,
the Company regularly retains independent experts to consult and to design
new software modules. Such product enhancements are then evaluated and
integrated with the Company's existing products by the Company's internal
research and development staff. In the years ended June 30, 1995 and 1996,
the Company spent $1,755,891 and $1,713,094, respectively, on research and
development activities.

EMPLOYEES

As of August 15, 1996, the Company had 32 full-time employees, including
11 in product development, 4 in sales and marketing, 2 in manufacturing, 1 in
data facilities support, 8 in customer support services and 6 in finance and
administration. The Company considers its relations with its employees to be
satisfactory.

Competition for technical personnel in the Company's industry is intense.
The Company believes that its future success will depend on its continued
ability to attract and retain qualified personnel. See "Risk Factors--
Ability to Manage Growth."

FACILITIES

The Company's corporate headquarters are located in North Kingstown, Rhode
Island, in a leased facility consisting of approximately 10,300 square feet
of space occupied under a lease expiring in December 1997. The Company also
leases office space in New York City on a short-term basis. The Company
believes its existing facilities are adequate for its present needs.

The Company's bank loan is secured by substantially all of the Company's
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

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<PAGE>

MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name and Age Position
----------------------------------- -------------------------------------------
<S> <C>
Malcolm G. Chace, III, 61 (1)(2) .. Director, Chairman
Hector D. Wiltshire, 54 ........... Director
Robert H. Stone, 46 ............... President, Chief Executive Officer, Director
Thomas E. Gardner, 58 (1)(2) ...... Chief Financial Officer, Treasurer, Director
Marvyn Carton, 77 (1) ............. Director
Matthias E. Lukens, Jr., 46 ....... Vice President - Research & Development
Christopher Neefus, 40 ............ Vice President - Sales
George H. Steele, III, 51 ......... Vice President - Marketing
Denis L. Marchand, 43 ............. Financial Controller
</TABLE>

- ------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve
at the discretion of the Board. Information with respect to the business
experience and affiliations of the directors and the executive officers of
the Company is set forth below. Following the consummation of the Offering,
the Company intends to appoint two directors who are neither officers nor
employees of the Company, Mr. Chace or their affiliates (the "Independent
Directors").

Mr. Chace has been Chairman of the Board of the Company since December
1994 and a director of the Company since October 1991. Mr. Chace has been a
Vice President and director of Point Gammon Corporation, a Chace family
investment company, since 1986. Mr. Chace is also Chairman of Mossberg
Industries, Inc. ("Mossberg"), a manufacturer of plastic reels principally
used by the wire industry, Chairman of Bank Rhode Island, and a director of
Berkshire Hathaway Company. He previously served as a director of Rhode
Island Hospital Trust National Bank.

Mr. Wiltshire was appointed to the Board of Directors in January 1996 and
served as interim President and Chief Executive Officer of the Company from
January 1996 to July 1, 1996. From 1990 to present, Mr. Wiltshire has served
as President and Chief Executive Officer of Wiltshire Technologies, Inc., a
consulting firm providing strategic planning and capital raising services for
clients in the medical and technology industries. From 1988 to 1990, Mr.
Wiltshire served as President and Chief Executive Officer of Riso, Inc., a
developer and distributor of high speed printing systems. From 1968 to 1988,
Mr. Wiltshire served in various senior positions, including Director of
Gestetner Holdings P.L.C. and President and Chief Executive Officer of
Gestetner U.S.A. and Canada, a manufacturer and distributor of printing and
duplicating equipment. Mr. Wiltshire was responsible for all Gestetner
activities in the Western Hemisphere, including North and South America, and
in Japan.

Mr. Stone was elected President and Chief Executive Officer of the Company
on August 1, 1996. Prior to joining the Company, Mr. Stone was Director of
Marketing of Standard Duplicating Machines Corporation since June 1994 and
prior to that president of Marketplex, Inc., a marketing services company,
since 1982. From June 1989 to February 1992, Mr. Stone was Director of
Product Marketing of Riso, Inc., a developer and distributor of high speed
printing systems.

Mr. Gardner has served as Chief Financial Officer of the Company since
April l996, Treasurer of the Company since May 1994 and has been a director
of the Company since May 1994. Mr. Gardner does not serve full time as the
Company's Chief Financial Officer or Treasurer. Mr. Gardner has also served
as the President of LJT Associates (a planning and financial consulting firm)
since April 1992. From 1979 to October 1992, Mr. Gardner was Senior Vice
President at Rhode Island Hospital Trust National Bank. Mr. Gardner has
served on various

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<PAGE>

Rhode Island and Providence commissions and committees and currently serves as
the Rhode Island Governor's appointee to the Depositors' Economic Protection
Corporation Performance Review Committee. Mr. Gardner, through LJT Associates,
is presently providing consulting services to Point Gammon Corporation.

Mr. Carton has been a director of the Company since 1994. Mr. Carton is a
Director Emeritus of Allen & Company, Incorporated, an investment banking and
financial services company. Mr. Carton began his employment at Allen &
Company, Incorporated in September 1948 and held various positions at Allen &
Company, Incorporated until his retirement in 1991 from the office of
Executive Vice President. Mr. Carton has been a Director of Acquisition
Resources Ltd., an oil and gas company, since 1993, the Chairman of Brown
University Third Century Fund from 1981 to 1987 and Co-Chairman since then.
Mr. Carton has also served in the past as a member of the boards of directors
of Syntex Corporation (a pharmaceuticals company), Frank B. Hall (an
insurance and financial services firm), and American Axle & Manufacturing
Co., among others.

Mr. Lukens has been Vice President -- Research and Development since
January 1996. From April 1994 to January 1996 Mr. Lukens served as the
Company's President and Chief Executive Officer. From April 1992 to May 1994,
Mr. Lukens served as President of WHR Corp., a local and wide area network
equipment compressing router company. From June 1990 to March 1992, Mr.
Lukens was President of Watch Hill Research Inc., a producer of high speed
data compressors for wide area network communications.

Mr. Neefus has been Vice President -- Sales of the Company since October
1995. Mr. Neefus was previously employed by Anacomp, Inc., a manufacturer and
distributor of microfiche and microfiche reading equipment, from 1989 to
October 1995 where he held various management positions in both the service
bureau and hardware sales divisions, including Region Vice President for the
New York/New Jersey Business Operations. Prior to 1989, Mr. Neefus held
various sales positions, including positions relating to the sale of
IBM-compatible mainframe software solutions.

Mr. Steele has served as Vice President -- Marketing since June 1995. Mr.
Steele, a founder of the Company, previously served as Director of Marketing
from April 1988 to June 1995. Mr. Steele is the architect of both the OAS and
GIGAPAGE. Prior to joining the Company, he was program manager of new
products and development for Aquidneck Data Corporation, and President of New
England Data Research, an embedded computer systems development company.

Mr. Marchand has served as Financial Controller of the Company since
September 1994. From July 1993 to September 1994 he was a Firm Administrator
for Rubin, Hay & Gould, P.C., a law firm located in Framingham, MA. From
October 1990 through May 1993 he was the financial controller of the U.S.
subsidiary of EWAG Corporation, a high precision grinding machine
manufacturer. Mr. Marchand holds an M.B.A degree from Bryant College, is a
certified internal auditor and has successfully passed the Uniform Certified
Public Accountant's examination.

BOARD COMMITTEES

The Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee is responsible for reviewing, approving
and recommending to the Board of Directors all compensation arrangements for
executive officers of the Company and for administering the 1996 Plan. The
Audit Committee is responsible for recommending to the Board of Directors the
annual engagement of the independent auditors and for reviewing with the
independent auditors the scope and results of audits, the internal accounting
controls of the Company, audit practices and professional services furnished
by the independent auditors. The Company anticipates that the Independent
Directors will join the Compensation and Audit Committees.

DIRECTOR COMPENSATION

The Company's directors currently do not receive any cash compensation for
service on the Board of Directors or any committee thereof, but directors may
be reimbursed for certain expenses in connection with attendance at Board or
committee meetings. The Company presently intends to continue this
compensation practice for its directors. However, the Company may reconsider
its policy if additional director compensation is necessary to enable the
Company to attract and retain qualified independent directors.

33
<PAGE>

SEARCH FOR CHIEF FINANCIAL OFFICER

The Company has commenced a search for a replacement for Mr. Gardner as
the Company's Chief Financial Officer. Mr. Gardner was appointed as Chief
Financial Officer in April 1996 in contemplation of the Offering. Such search
has been initiated as a result of Mr. Gardner's desire to serve the Company
in such capacity only until such time as a suitable replacement can be
identified and hired.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain
information with respect to the compensation paid by the Company for services
rendered during the fiscal year ended June 30, 1996 to the chief executive
officer and the other executive officers of the Company whose compensation
exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------- --------------
Securities
Name and Underlying All Other
Principal Position Salary Bonus Options Compensation
------------------------------------ ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Hector Wiltshire,
President and Chief Executive
Officer(1) ....................... -- -- -- $744,000(2)
Matthias E. Lukens, Jr.,
President and Chief Executive
Officer (3); Vice President -
Research & Development ........... $127,882 $ 20,000 1,216 --
George H. Steele, III, Vice
President - Marketing ............ $ 76,400 -- 676 $ 85,555(4)
Christopher Neefus, Vice President -
Sales ............................ $ 89,501 $5,000(5) -- $ 14,640(4)
</TABLE>
- ------
(1) Mr. Wiltshire was interim President and Chief Executive Officer from
January 1996 to July 1996.
(2) Includes a non-cash charge of $424,830 representing the fair value of
Common Stock issued to Mr. Wiltshire in exchange for his service as
President, relinquishment of warrants from a prior bridge loan and
consideration for a $250,000 short term loan. See "Certain Transactions
-- Transactions with Mr. Wiltshire." The shares would carry an aggregate
value of $1,561,875 if priced at an assumed initial offering price of
$3.75 per share (assuming an initial public offering price of $7.50 per
Unit and no allocation of the offering price to the Redeemable Warrants
included in the Units).
(3) Effective January 2, 1996, Mr. Lukens' duties were changed. Mr. Lukens
now serves as Vice President-- Research and Development.
(4) Represents sales commissions paid during fiscal 1996.
(5) Represents a hiring incentive bonus.

Option Grants in Last Fiscal Year. The following table sets forth certain
information with respect to option grants during the fiscal year ended June
30, 1996 to the Named Executive Officers.

<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/SH) Date
---- ------------ --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Hector Wiltshire ......................... -- -- -- --
Matthias E. Lukens, Jr. .................. 1,216 24% $222 8/11/05
George H. Steele, III .................... 676 14% $222 8/11/05
Christopher Neefus ....................... -- -- -- --
</TABLE>

34
<PAGE>

Year-end Option Table. During the fiscal year ended June 30, 1996, none of
the Named Executive Officers exercised any options issued by the Company. The
following table sets forth information regarding the stock options held as of
July 1, 1996 by the Named Executive Officers.

<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money-
Options at Fiscal Year-End Options at Fiscal Year End
------------------------------------------- -------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Hector Wiltshire .......... -- -- -- --
Matthias E. Lukens, Jr. ... 3,107(1) 1,216(1) (2) (2)
George H. Steele, III ..... 406(1) 676(1) (2) (2)
Christopher Neefus ........ -- -- -- --
</TABLE>

- ------
(1) On August 1, 1996, the outstanding options were canceled and new options
were granted. See "Stock Option Plans."
(2) The exercise price of the options outstanding at June 30, 1996 was
greater than the estimated fair market value of the Common Stock on such
date. In the absence of a public trading market, the fair market value
was estimated to be equal to the Company's book value on such date.

STOCK OPTION PLANS

In August 1996, the Company terminated the 1994 Directors Plan, which was
a stock option plan for non-employee directors. There are options
outstanding to purchase 1,014 shares pursuant to the 1994 Directors Plan at
an exercise price of $222 per share. Under the 1994 Directors Plan, upon a
director's election to the Board, the director was automatically awarded an
option to purchase 338 shares of Common Stock, at an exercise price equal to
100% of the fair market value on the date the option was granted. The option
was not exercisable until the director served one full-year term from the
date such director was elected. The option then vested 25% on each of the
first through fourth anniversaries of the date of the grant.

In August 1996, the Company terminated its 1987 Stock Option and Purchase
Plan and 1994 Stock Option Plans (the "Terminated Plans") and adopted the
1996 Plan pursuant to which key employees of the Company, including directors
who are employees, are eligible to receive grants of options to purchase
Common Stock, at the discretion of the Compensation Committee. The Company
has reserved 500,000 shares of Common Stock for issuance under the 1996 Plan.
Options granted under the 1996 Plan can be either incentive stock options or
non-qualified options, at the discretion of the Compensation Committee. On
August 1, 1996, the Company canceled the 8,351 options outstanding under the
Terminated Plans (having exercise prices ranging from $74 to $240.50 per
share) and granted options to purchase 248,351 (of which 8,351 are
immediately exercisable) shares of Common Stock at an exercise price equal to
$3.75 per share.

NON-PLAN OPTIONS

From time to time, the Company has issued options to purchase shares of
its Common Stock to certain consultants and in connection with certain equity
and debt financings provided to the Company. As of August 1, 1996, the
Company had non-plan options to purchase 891 shares of Common Stock
outstanding; of such amount, options to purchase 236 shares, 52 shares, 18
shares and 203 shares were held by Mr. Christopher Ingraham (a former
director of the Company), Mr. Lukens, Mr. Chace and Mossberg, respectively.
Mr. Chace is the Chairman of Mossberg. The non-plan options are all 100%
vested and the exercise price of the options range from $74 to $399.60 per
share. Mr. Ingraham received his options as compensation for services
rendered to the Company as a consultant, each of Messrs. Chace and Lukens
received his options as compensation for serving as a director, and Mossberg
received its options in connection with certain debt financing it provided to
the Company.

EMPLOYMENT AGREEMENTS

The Company entered into a two-year employment agreement with Mr. Stone
pursuant to which he is employed full-time as the Company's President and
Chief Executive Officer effective August 5, 1996. Pursuant to the terms of
the employment agreement, Mr. Stone receives an annual base salary of
$137,500, and is entitled to bonus compensation (payable within 10 days
following the receipt of the Company's audited financial statements

35
<PAGE>

for the fiscal year ended June 30, 1997) calculated as follows: (i) if the
Company has a pre-tax profit for fiscal 1997 of $500,000 or less, 5% of such
pre-tax profit; and (ii) if the Company has a pre-tax profit for fiscal 1997 of
more than $500,000, 10% of such pre-tax profit. The bonus will be paid by the
grant in August 1996 to Mr. Stone of an incentive stock option to purchase
10,000 shares of the Common Stock at an exercise price of $3.75 per share,
vesting only if the pre-tax profits for fiscal 1997 exceed $500,000 and the
balance (calculated by subtracting from the total bonus the amount determined by
multiplying any difference between (i) the market price per share of the Common
Stock on June 30, 1997, and (ii) $3.75, by 10,000) in cash. Bonuses for any
subsequent fiscal years during which Mr. Stone is employed will be determined by
the Board of Directors. Mr. Stone also was granted 40,000 incentive stock
options under the 1996 Plan, with an exercise price equal to $3.75, vesting 50%
at July 31, 1997 and the remainder at July 31, 1998, so long as he continues to
be employed by the Company. Additionally, Mr. Stone is entitled to participate
in any incentive compensation, bonus and stock option plan established by the
Company for the benefit of executive level employees of the Company to the
extent prescribed by the Board of Directors. Pursuant to the terms of the
employment agreement, if Mr. Stone's employment is terminated by the Board of
Directors other than for "cause," he is entitled to receive severance payments
equal to the greater of six months salary or the balance of his then current
salary through June 30, 1997 (or, if such termination occurs after June 30,
1997, through the last day of the Company's fiscal year in which such
termination occurs). The employment agreement expires on July 31, 1998, subject
to successive automatic one-year renewals unless terminated by the Company at
least 90 days prior to the expiration of the term. Mr. Stone is restricted from
competing with the Company and prohibited from disclosing any confidential
information regarding the Company during and following his period of employment.

The Company has entered into an employment agreement with Mr. Lukens
pursuant to which he is currently employed full-time as the Company's Vice
President-Research and Development. Mr. Lukens began his employment with the
Company in May 1994 as the Company's President and Chief Executive Officer.
On January 2, 1996, Mr. Luken's position and duties were changed to Vice
President-Research and Development. Pursuant to the terms of the employment
agreement, if Mr. Lukens voluntarily terminates his employment with the
Company prior to October 31, 1996 as a result of the change in his position
and duties, he will be entitled to severance benefits equal to six months
salary. The employment agreement expires on August 31, 1997, subject to
successive automatic one-year renewals unless terminated by the Company at
least 90 days before expiration of the term. Mr. Lukens receives an annual
base salary of $119,000, subject to increase at the discretion of the
Compensation Committee. Additionally, Mr. Lukens is entitled to participate
in any incentive compensation, bonuses and stock options established for the
benefit of executive level employees of the Company as determined by the
Board of Directors or the Compensation Committee. Mr. Lukens is restricted
from competing with the Company and prohibited from disclosing any
confidential information regarding the Company during and following his
period of employment.

CERTAIN TRANSACTIONS

DEBT TRANSACTIONS WITH MR. CHACE AND HIS AFFILIATES

In November 1994, the Company entered into a secured line of credit with
Mossberg, pursuant to which Mossberg loaned the Company $300,000 secured by
certain accounts receivable of the Company. The line of credit was increased
to $500,000 on December 1, 1994. The interest rate on the outstanding balance
of the line of credit was 9 3/4% per annum for each advance made prior to
December 1, 1994 and the prime rate in effect on the date of each advance
made on or after December 1, 1994 plus 2% per annum. The line of credit was
repaid and terminated in February 1995. Mr. Chace, the Chairman of Mossberg,
owns 17.15% of the common stock of Mossberg.

In December 1994, the Company entered into a secured line of credit with
Mr. Chace, pursuant to which Mr. Chace loaned the Company $200,000 secured by
certain accounts receivable of the Company. The interest rate on the
outstanding balance of the line of credit was the prime rate of Fleet
National Bank in effect on the date of each advance plus 2% per annum. The
line of credit was repaid and terminated in January 1995.

In May 1995, the Company entered into a secured line of credit with
Mossberg, pursuant to which Mossberg loaned the Company $200,000 secured by
certain accounts receivable of the Company. The interest rate on the
outstanding balance of the line of credit was the prime rate of Fleet
National Bank in effect on the date of each advance plus 2% per annum. The
line of credit was repaid and terminated in September 1995.

36
<PAGE>

In May 1995, the Company entered into a secured line of credit with
Elizabeth Z. Chace and Christian Nolen, as Trustees u/a/d August 30, 1938
f/b/o Malcolm G. Chace, III ("Trustees"), pursuant to which the Trustees
loaned the Company $250,000 secured by certain accounts receivable of the
Company. The interest rate on the outstanding balance of the line of credit
was the prime rate of Fleet National Bank in effect on the date of each
advance plus 2% per annum. Mr. Chace is the beneficiary of said trust. The
line of credit was increased to $300,000 in June 1995 and the additional
$50,000 was immediately borrowed by the Company. The line of credit was
repaid and terminated in December 1995.

In August 1995, the Company entered into an additional line of credit with
Mr. Chace, pursuant to which Mr. Chace loaned to the Company $1,335,415 at
various dates secured by certain future accounts receivable of the Company.
The interest rate on the outstanding balance of the line of credit was the
prime rate plus 2%. In connection with the Recapitalization, Mr. Chace
exchanged the promissory notes in the aggregate principal amount of
$1,335,415 plus $40,759 of accrued but unpaid interest for 426,279 shares of
Common Stock. See "The Company" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

In February 1996, the Company borrowed $250,000 from Mr. Chace. Such
borrowings were evidenced by a demand promissory note which bore interest at
the rate of 10.25% per annum. The note was repaid in full in February 1996.

In March 1996, the Company borrowed $250,000 from Mr. Chace. Such
borrowings were evidenced by a demand promissory note which bore interest at
the rate of 10% per annum. This note was exchanged for units in the Bridge
Financing.

In April 1996, the Company borrowed $85,000 from Mr. Chace for working
capital purposes. Such borrowings were evidenced by a demand promissory note
which bore interest at the rate of 10%. The note was repaid in full in May
1996 from the proceeds of the Bridge Financing. See "--Securities Offerings"
below.

AGREEMENTS WITH FORMER OFFICERS AND DIRECTORS

The Company is a party to a Consulting Agreement dated December 20, 1994
with Mario Briccetti, a former President and Chief Executive Officer of the
Company. Pursuant to the agreement, Mr. Briccetti agreed to provide the
Company with his assistance in matters in which he was involved on behalf of
the Company prior to his termination. Such assistance is to be rendered
without compensation, other than reimbursement of out-of- pocket expenses,
except in those instances requiring out-of-town travel for which he will be
compensated $650 per day. Pursuant to the agreement, in January 1995, Mr.
Briccetti: (i) exercised options to purchase 229 shares of Common Stock at an
exercise price of $74.00 per share, by delivering 76 shares of Common Stock
owned by him valued at $224.00 per share and paying $2.00 in cash for an
aggregate exercise price of $16,931; and (ii) exchanged options to acquire
915 shares of Common Stock pursuant to the 1987 Plan for options to acquire
915 shares of Common Stock at an exercise price of $92.50 pursuant to the
1994 Employee Plan. The exchange of options created a new measurement date
and the Company recognized compensation expense in the amount of $118,517
based on the difference between the exercise price and the fair market value
of the options granted. The Company has no existing obligations pursuant to
this agreement with the exception of payment for travel expenses and
compensation for out-of-town travel if the Company engages the services of
Mr. Briccetti.

From time to time, the Company has issued options to purchase shares of
its Common Stock to certain consultants and in connection with certain equity
and debt financings provided to the Company. As of June 30, 1996 the Company
had non-plan options to purchase 749 shares of Common Stock outstanding; of
such amounts, options to purchase 216 shares, 12 shares and 203 shares were
held by Mr. Ingraham, Mr. Lukens and Mossberg, respectively. Mr. Chace is the
Chairman, President and Chief Executive Officer of Mossberg. The non-plan
options are all 100% vested. The exercise price of the options range from
$222 to $399.60 per share. Each of Messrs. Ingraham and Lukens received his
non-plan options as compensation for services rendered to the Company as a
consultant and Mossberg received its non-plan options in connection with
certain financing it provided to the Company. See "Management -- Non-Plan
Options."

SECURITIES OFFERINGS

In May 1994, the Company sold 6,757 shares of Common Stock for $148 per
share in cash in a private placement. Manold Company, a general partnership
in which Mr. Chace is a partner, purchased 2,252 shares of

37
<PAGE>

Common Stock for an aggregate purchase price of $333,334. As a result of such
sale, the Company was required, pursuant to anti-dilution provisions in
agreements with certain holders of Common Stock, to issue 5,255 shares of
Common Stock to such stockholders. Prior to this Offering, all rights of such
holders to receive additional shares of Common Stock pursuant to such
anti-dilution provisions have been terminated.

During the second quarter of fiscal 1995, the Company sold 2,671 shares of
Common Stock in a private placement for a total of approximately $593,000 in
cash to certain of the Company's directors and their affiliates. The
following directors and affiliates purchased shares of Common Stock from the
Company: Mr. Carton purchased 338 shares, Mr. Gardner purchased 67 shares,
Mr. Ingraham purchased 13 shares, Manold Company purchased 751 shares, Paul
A. Gould purchased 225 shares, Allen & Company, Inc., a company on whose
Board of Directors Mr. Carton serves, purchased 526 shares and Brown
University Third Century Fund, an entity on whose Board of Directors Mr.
Carton serves, purchased 751 shares.

In January 1995, the Company sold 50,000 shares of Preferred Stock for
$2,000,000 in cash in a private placement to the Trustees.

In September 1995, the Company sold 26 units, each unit consisting of a
$50,000 promissory note and a warrant to purchase 265 shares of Common Stock,
in a private placement for a total of $1,300,000 in cash. Among the
purchasers, Mr. Chace purchased 4 units for $200,000 and Mr. Wiltshire
purchased 10 units for $500,000. The promissory notes and warrants
subsequently have been either canceled or exchanged for shares of Common
Stock. See "The Company -- Recapitalization."

In connection with the Bridge Financing, Mr. Chace purchased from the
Company five units, each consisting of a $50,000 promissory note and a
warrant to purchase 25,000 shares of Common Stock. A portion of the proceeds
of this Offering will be used to repay the indebtedness incurred in
connection with the Bridge Financing. See "Use of Proceeds." Additionally,
upon consummation of this Offering, Mr. Chace will receive 125,000 New
Warrants in exchange for the Bridge Warrants he had acquired in connection
with the Bridge Financing. Mr. Chace is one of the Selling Securityholders
who are offering hereby to sell certain securities. See "The Company --
Recent Bridge Financing" and "Selling Securityholders."

TRANSACTIONS WITH MR. WILTSHIRE

In January 1996, the Company issued 416,500 shares of Common Stock to
Hector D. Wiltshire in consideration for: (i) Mr. Wiltshire's agreement to
serve as the Company's interim President and Chief Executive Officer; (ii)
his agreement to relinquish the warrants he had acquired in connection with
the $500,000 bridge financing he provided to the Company in September 1995;
and (iii) his agreement to lend the Company $250,000 on a short-term basis.
As a result, the Company incurred a compensation expense in the amount of
$744,000, including a non-cash charge of $424,830 representing the fair value
of the Common Stock as determined by independent appraisal. The Company has
agreed to reimburse Mr. Wiltshire for any federal and state income taxes
payable by him associated with the valuation for tax purposes of such Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations." Mr. Wiltshire simultaneously
transferred 208,250 shares to each of his two adult children.

In January 1996, the Company borrowed $250,000 from Mr. Wiltshire. This
loan, secured by certain accounts receivable of the Company, bore interest at
the rate of the prime rate plus 2% per annum (10.25% on February 29, 1996)
and was repaid in full on February 29, 1996. See "--Securities Offerings"
above.

38
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
August 1, 1996 by (i) each stockholder who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) the Named Executive Officers, and (iv) all directors and
executive officers of the Company as a group. Unless otherwise indicated,
each has sole voting and investment power with respect to the shares
beneficially owned.

Percentage of Common Stock
Shares of -----------------------------
Common Stock Prior to the After the
Name Beneficially Owned Offering Offering(1)
------------------------------------------- ------------------ -------------- -----------
<S> <C> <C> <C>
Malcolm G. Chace, III(2) .................. 757,315 50.13% 20.78%
A.I.M. Overseas N.V. ...................... 236,500 15.66 6.49
Hector D. Wiltshire ....................... -- -- --
Raymond Wiltshire (3) ..................... 208,250 13.79 5.71
Sandra Wiltshire (3) ...................... 208,250 13.79 5.71
Robert H. Stone ........................... -- -- --
Marvyn Carton (4) ......................... 423 * *
Thomas E. Gardner (5) ...................... 13,891 * *
George H. Steele, III (6) ................. 1,142 * *
Matthias E. Lukens, Jr. (7) ............... 3,147 * *
Christopher Neefus ........................ -- -- --
Directors and executive officers as a group
(9 persons) (8) .......................... 776,036 51.37% 21.30%
</TABLE>

- ------
* Less than one percent.

(1) Assumes that all Common Stock held by such stockholder is sold in the
Concurrent Offering.

(2) Includes 103 shares of Common Stock issuable upon exercise of currently
exercisable stock options. Excludes 203 shares of Common Stock owned of
record by Mossberg Industries, Inc. of which Mr. Chace is the Chairman of
the Board of Directors. Mr. Chace disclaims beneficial ownership of the
shares of Common Stock owned of record by Mossberg Industries, Inc.

(3) Raymond Wiltshire and Sandra Wiltshire are each adult children of Mr.
Hector Wiltshire. See "Selling Securityholders." Mr. Wiltshire disclaims
beneficial ownership of the shares of Common Stock owned of record by
each of Raymond and Sandra Wiltshire.

(4) Includes 85 shares of Common Stock issuable upon exercise of currently
exercisable stock options.

(5) Includes 67 shares of Common Stock jointly held with Leslie A. Gardner.

(6) Includes 406 shares of Common Stock issuable upon exercise of currently
exercisable options.

(7) Consists of currently exercisable options to purchase 3,147 shares of
Common Stock.

(8) Includes 3,859 shares of Common Stock issuable upon exercise of currently
exercisable options.

<PAGE>

SELLING SECURITYHOLDERS

An aggregate of 750,000 Redeemable Warrants which will be issued to
certain Selling Securityholders in exchange for the Bridge Warrants, together
with 750,000 shares of Common Stock issuable upon the exercise of such
Redeemable Warrants, and an additional 100,000 shares of Common Stock are
being offered hereby, at the expense of the Company, for the account of the
Selling Shareholders. See "Securities Eligible for Future Sale." The Bridge
Warrants were issued as part of the Bridge Financing. Sales of such Common
Stock, such Redeemable Warrants and the underlying shares of Common Stock may
depress the price of the Common Stock or Redeemable Warrants in any market
that may develop for such securities.

The following table sets forth information with respect to persons for
whom the Company is registering the Redeemable Warrants and shares of Common
Stock for resale to the public in the Concurrent Offering. Beneficial
ownership of Redeemable Warrants and Common Stock by such Selling
Securityholders after the Offering will depend on the number of securities
sold by each Selling Securityholder in the Concurrent Offering.

<TABLE>
<CAPTION>
Ownership After the Offering and Ownership After the Offering and
Prior to Sales in the Concurrent Offering(1) After Sales in the Concurrent Offering (1)
------------------------------------------------ -----------------------------------------------
Redeemable Warrants Common Stock Redeemable Warrants Common Stock
---------------------- ------------------------ --------------------- ------------------------
Selling
Securityholder Number Percent Number Percent Number Percent Number Percent
--------------------- --------- --------- ----------- --------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Malcolm G. Chace, III 125,000 16.6% 757,213 20.78% -0- -0- 757,213 20.78%
Celeste C. Grynberg 37,500 5.0 -- -- -0- -0- -- --
Stephen J. Nicholas 37,500 5.0 -- -- -0- -0- -- --
Stanley S. Arkin 37,500 5.0 -- -- -0- -0- -- --
Ery W. Kehaya and
Helga L. Kehaya 37,500 5.0 -- -- -0- -0- -- --
Ronald J. Frank 37,500 5.0 -- -- -0- -0- -- --
Lincolnwoods
Investments, LLC 37,500 5.0 -- -- -0- -0- -- --
Joseph Jurgensmeyer 37,500 5.0 -- -- -0- -0- -- --
Barry Lind and Neil
Bluhm 37,500 5.0 -- -- -0- -0- -- --
Daniel R. Lee 37,500 5.0 -- -- -0- -0- -- --
Charles Johnston 37,500 5.0 -- -- -0- -0- -- --
Michael Trokel 125,000 16.6 -- -- -0- -0- -- --
Allen Meisels 125,000 16.6 -- -- -0- -0- -- --
Raymond Wiltshire -- -- 208,250 5.71 -- -- 158,250 4.34
Sandra Wiltshire -- -- 208,250 5.71 -- -- 158,250 4.34
------- --- --------- ----- --- --- --------- -----
Total 750,000 100 % 1,173,713 32.20% -0- -0- 1,073,713 29.46%
======= === ========= ===== === === ========= =====
</TABLE>

- ------
(1) Assuming no purchase by any Holder of Common Stock or Redeemable Warrants
offered in the Offering.

The securities offered by the Holders are not being underwritten by the
Underwriter. The Holders have agreed not to sell or otherwise dispose of any
of their securities during the Lock-up Period unless the prior consent of the
Underwriter is obtained. With such consent, the Holders may sell the
Redeemable Warrants or the shares of Common Stock at any time on or after the
date hereof. In addition, the Holders have agreed with the Company that,
during the period ending on the second anniversary of the effective date of
the Registration Statement, the holders will not sell such securities other
than through the Underwriter, and that the Holders shall compensate the
Underwriter in accordance with its customary compensation practices. Subject
to these restrictions, the Company anticipates that sales of the Redeemable
Warrants or the shares of Common Stock may be effected from time to time in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale,
at fixed prices that may be changed, at market prices prevailing at the time
of sale, or at negotiated prices. The Holders may effect such transactions by
selling the Redeemable Warrants or the shares of Common Stock directly to
purchasers or through broker-dealers that may act as agent or principals.
Such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the holders or the purchasers of the
Redeemable Warrants or the shares of Common Stock for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).

40
<PAGE>

The Holders and any broker-dealers that act in connection with the sale of
the Redeemable Warrants or the shares of Common Stock as principals may be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and any commission received by them and any profit on the
resale of such securities as principals might be deemed to be underwriting
discounts and commissions under the Securities Act. The Holders may agree to
indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of such securities against certain liabilities,
including liabilities arising under the Securities Act. The Company will not
receive any proceeds from the sales of the Redeemable Warrants or the shares
of Common Stock by the Holders, although the Company will receive proceeds
from the exercise of the Redeemable Warrants. Sales of the Redeemable
Warrants or shares of Common Stock by the Holders, or even the potential of
such sales, would likely have an adverse effect on the market price of the
Units, the Redeemable Warrants and Common Stock.

At the time a particular offer of Redeemable Warrants or the shares of
Common Stock is made, except as herein contemplated, by or on behalf of a
Holder, to the extent required, a Prospectus will be distributed which will
set forth the number of Redeemable Warrants or shares of Common Stock being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for shares purchased from the Holder and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.

Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the securities of the Company offered by this Prospectus
may not simultaneously engage in market-making activities with respect to
such securities of the Company during the applicable "cooling-off" period
(two or nine days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-6 and 10b-7, in
connection with transactions in such securities, which provisions may limit
the timing of purchases and sales of such securities by the Holders.

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 13,000,000 shares
of Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock,
$.01 par value. Immediately prior to the issuance and sale of the Units
pursuant to this Offering, the Company will have outstanding 1,510,606 shares
of Common Stock held of record by approximately 127 stockholders and no
shares of Preferred Stock.

DESCRIPTION OF UNITS

Each Unit consists of two shares of Common Stock, $.01 par value, and one
Redeemable Warrant, which entitles the holder to purchase one share of Common
Stock at an initial exercise price of $______ [66 2/3 % of the initial public
offering price per Unit] (subject to adjustment). The Common Stock and
Redeemable Warrants will be detachable and separately transferable commencing
on the date of issuance. The Company and the Underwriter may jointly
determine, based upon market conditions, to delist the Units upon the
expiration of the 30-day period commencing on the date of this Prospectus.

DESCRIPTION OF NEW WARRANTS AND REDEEMABLE WARRANTS

The Redeemable Warrants, including the New Warrants, will be issued under
and subject to the terms of a Warrant Agreement dated as of _________, 1996
between the Company and Continental Stock Transfer & Trust Company, as
warrant agent (the "Warrant Agent"). The summaries of certain provisions of
the Warrant Agreement hereunder do not purport to be complete and are subject
to and are qualified in their entirety by reference to all of the provisions
of the Warrant Agreement. A copy of the Warrant Agreement is being filed as
an exhibit to the Registration Statement of which this Prospectus forms a
part.

General

Each Redeemable Warrant will entitle the registered owner thereof (the
"Warrantholder") to purchase one share of Common Stock at an initial exercise
price of $_____ [66 2/3 % of the initial public offering price per Unit],
subject to adjustment, commencing on the date of issuance until 5:00 p.m. New
York time, on _______,

<PAGE>

2001 [60 months after the date of this Prospectus] (the "Expiration Date"),
unless previously redeemed. Each Redeemable Warrant shall be issued in
registered form and is transferable from and after the date of issuance and
prior to the Expiration Date. Warrantholders are not entitled, by virtue of
being Warrantholders, to receive dividends or to consent to or receive notice as
shareholders in respect of any meeting of shareholders for the election of
directors of the Company or any other matter, or to vote at any such meetings or
to exercise any rights whatsoever as shareholders of the Company. Commencing
______, 1997 [12 months from the date of this Prospectus], the Company shall
have the right at any time to redeem all, but not less than all, of the
Redeemable Warrants at a redemption price of $.05 per Redeemable Warrant, on 30
days' prior written notice, provided that (i) the average closing bid price of
the Common Stock for any 20 trading days in a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption, equals or exceeds 150% of the then exercise price per share, subject
to adjustment, and (ii) the Company shall have obtained the written consent of
the Underwriter.

Adjustments

The exercise price of the Redeemable Warrants and the number of shares of
Common Stock issuable upon exercise of the Redeemable Warrants are subject to
adjustment in certain events including subdivisions or combinations of the
Company's outstanding Common Stock, stock dividends and distributions,
mergers and consolidations.

Amendments

The Board of Directors of the Company, in its discretion, may amend the
terms of the Redeemable Warrants to, among other things, reduce the exercise
price; provided, however, that no amendment adversely affecting the rights of
the holders of the Redeemable Warrants may be made without the approval of
the holders of not less than a majority of the Redeemable Warrants then
outstanding.

Exercise of Redeemable Warrants

The Redeemable Warrants may be exercised by surrendering to the Warrant
Agent a warrant certificate duly executed by the Warrantholder or his duly
authorized agent and indicating such Warrantholder's election to exercise all
or a portion of the Redeemable Warrants evidenced by such warrant
certificate. Surrendered warrant certificates must be accompanied by payment
of the aggregate exercise price of the Redeemable Warrants to be exercised,
which payment may be made, at the Warrantholder's option, in cash or by
delivery of a cashier's or certified check or any combination of the
foregoing. A current Prospectus must be in effect in order for holders of
Redeemable Warrants to exercise such Redeemable Warrants. Pursuant to the
terms of the Warrant Agreement, the Company has agreed to maintain a current
Prospectus in effect until the Expiration Date.

Upon receipt of duly executed Redeemable Warrants and payment of the
exercise price, the Company shall issue and cause to be delivered, to or upon
the written order of exercising Warrantholders, certificates representing the
number of shares of Common Stock so purchased. If fewer than all of the
Redeemable Warrants evidenced by any warrant certificates are exercised, a
new warrant certificate evidencing the Redeemable Warrants remaining
unexercised will be issued to the Warrantholder.

The Company has authorized and will reserve for issuance a number of
shares of Common Stock sufficient to provide for the exercise of all of the
Redeemable Warrants. When delivered in accordance with the Warrant Agreement,
such shares of Common Stock will be fully paid and nonassessable.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution
or winding up of the Company, holders of the Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding Preferred Stock.

42
<PAGE>

Holders of Common Stock have no preemptive rights and no right to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All shares of Common Stock to be
issued in connection with this Offering, upon completion of this Offering, will
be fully paid and nonassessable.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock, par value $.01 per share. Such shares of
Preferred Stock may be issued in one or more series from time to time with
such designations, rights, preferences and limitations as the Board of
Directors may determine. The rights, preferences and limitations of separate
series of Preferred Stock may differ with respect to such matters as may be
determined by the Board of Directors, including, without limitation, the rate
of dividends, method or nature of payment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions, conversion rights
and voting rights. Such undesignated shares could also be used as an
anti-takeover device by the Company since they could be issued with
"super-voting rights" and placed in the control of parties friendly to the
current management. The Company has no present plans to issue any of the
designated shares. See "Risk Factors--Reduced Probability of Change of
Control or Acquisition of Company Due to Existence of Anti-Takeover
Provisions."

REGISTRATION RIGHTS

Pursuant to the terms of the warrants which the Company has agreed to
issue to the Underwriter at the closing of the Offering (the "Underwriter's
Warrants"), the holders of the Underwriter's Warrants are entitled to certain
rights with respect to the registration of the shares of Common Stock
issuable upon exercise of the Underwriter's Warrants. Subject to certain
limitations, if the Company proposes to register any of its securities under
the Securities Act, either for its own account or for the account of other
security holders during the seven year period following the closing of the
Offering, the holders of the Underwriter's Warrants are entitled to written
notice of the registration and are entitled to include, at the Company's
expense, such shares therein. All expenses of the holders of the
Underwriter's Warrants or the shares of Common Stock issuable upon its
exercise will be borne by the Company. In addition, during the five year
period following the closing of the Offering, the holders of the
Underwriter's Warrants or the shares of Common Stock issuable upon its
exercise may require, subject to certain conditions and limitations, on not
more than one occasion, the Company to use its best efforts to file a
registration statement under the Securities Act with respect to the shares of
Common Stock issuable upon the exercise of the Underwriter's Warrants.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock of the Company is
Continental Stock Transfer & Trust Company.

43
<PAGE>

SECURITIES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding an
aggregate of 3,643,940 shares of Common Stock assuming (i) the issuance by
the Company of 2,133,334 shares of Common Stock included in the Units offered
hereby, (ii) no issuance of shares of Common Stock relating to outstanding
warrants to purchase Common Stock, and (iii) no exercise of outstanding
options to purchase Common Stock. Of these shares, the 2,133,334 shares
included in the Units will be freely tradable without restriction or further
registration under the Securities Act, except for shares held by Affiliates
of the Company (whose sales would be subject to certain limitations and
restrictions described below) and the regulations promulgated thereunder.

The remaining 1,510,606 shares were sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
"restricted securities" within the meaning of Rule 144 under the Securities
Act. Of these shares, 26,064 will become eligible for sale in the public
markets under Rule 144 90 days after the Effective Date. An additional
426,279 and 614,733 of these shares will first become eligible for sale in
the public markets under Rule 144 on August 15, 1997 and September 27, 1997,
respectively.

The Redeemable Warrants underlying the Units offered hereby and the shares
of Common Stock underlying such Redeemable Warrants, upon exercise thereof,
will be freely tradable without restriction under the Securities Act, except
for any Redeemable Warrants or shares of Common Stock purchased by an
Affiliate, which will be subject to the resale limitations of Rule 144 under
the Securities Act. In addition, 750,000 Redeemable Warrants, 750,000 shares
of Common Stock underlying such Redeemable Warrants and 100,000 shares of
Common Stock are being registered in the Concurrent Offering. Holders of such
Redeemable Warrants have agreed not to transfer such securities for a period
of 18 months from the effective date of the Registration Statement, without
the prior written consent of the Underwriter. An appropriate legend shall be
marked on the face of the certificates representing such securities.

In addition, without the consent of the Underwriter, the Company has
agreed not to sell or offer for sale any of its securities during the Lock-up
Period, except pursuant to outstanding options and warrants and pursuant to
the Company's existing option plans and no option shall have an exercise
price that is less than the fair market value per share of Common Stock on
the date of grant. An appropriate legend shall be marked on the face of
certificates representing all such securities.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned shares for at least two years is entitled to sell, within any three-
month period, a number of shares that does not exceed the greater of (i) 1%
of the then outstanding shares of Common Stock (approximately 36,439 shares
immediately after this Offering) or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale, subject
to the filing of a Form 144 with respect to such sale and certain other
limitations and restrictions. In addition, a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a
sale and who has beneficially owned the shares proposed to be sold for at
least three years would be entitled to sell such shares under Rule 144
without regard to the requirements described above. To the extent that shares
were acquired from an affiliate of the Company, such stockholder's holding
period for the purpose of effecting a sale under Rule 144 commences on the
date of transfer from the affiliate. The Commission has recently proposed to
amend Rule 144 to shorten each of the two-year and three-year periods by one
year.

Sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities.

44
<PAGE>

UNDERWRITING

Joseph Stevens & Company, L.P. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriter on a firm commitment basis
all of the Units offered by the Company hereby.

The Company has been advised by the Underwriter that the Underwriter
initially proposes to offer the Units to the public at the public offering
price set forth on the cover page of this Prospectus and that the Underwriter
may allow to certain dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") concessions not in excess of $ per
Unit, of which amount a sum not in excess of $ per Unit may in turn be
reallowed by such dealers to other dealers. After the commencement of the
Offering, the public offering price, concessions and reallowances may be
changed. The Underwriter has informed the Company that it does not expect
sales to discretionary accounts by the Underwriter to exceed five percent of
the securities offered by the Company hereby.

The Company has granted to the Underwriter an option, exercisable within
45 days of the date of this Prospectus, to purchase from the Company at the
offering price, less underwriting discounts and the non-accountable expense
allowance, all or part of an additional 160,000 Units on the same terms and
conditions of the Offering for the sole purpose of covering over-allotments,
if any.

The Company and the Selling Securityholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act. The Company has agreed to pay to the Underwriter a
non-accountable expense allowance equal to three percent of the gross
proceeds derived from the sale of the Units underwritten, $25,000 of which
has been paid to date.

Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Underwriter, and
to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the
Underwriter a commission which shall not exceed five percent of the aggregate
exercise price of such Redeemable Warrants in connection with bona fide
services provided by the Underwriter relating to any warrant solicitation. In
addition, the individual must designate the firm entitled to such warrant
solicitation fee. However, no compensation will be paid to the Underwriter in
connection with the exercise of the Redeemable Warrants if (a) the market
price of the Common Stock is lower than the exercise price of the Redeemable
Warrants, (b) the Redeemable Warrants were held in a discretionary account or
(c) the Redeemable Warrants are exercised in an unsolicited transaction.
Unless granted an exemption by the Commission from its Rule 10b-6 promulgated
under the Exchange Act, the Underwriter will be prohibited from engaging in
any market making activities with regard to the Company's securities for the
period from nine business days (or such applicable periods as Rule 10b-6 may
provide) prior to any solicitation of the exercise of the Redeemable Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Underwriter may have to
receive a fee. As a result, the Underwriter may be unable to continue to
provide a market for the Company's Units, Common Stock or Redeemable Warrants
during certain periods while the Redeemable Warrants are exercisable. If the
Underwriter has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Underwriter undertakes to waive
unconditionally its rights to receive a commission on the exercise of such
Redeemable Warrants.

Of the 3,643,940 shares of Common Stock to be outstanding upon completion
of the Offering, the holders of more than 98% of the issued and outstanding
shares of Common Stock prior to the Offering have agreed (i) not to Transfer
any securities issued by the Company, including shares of Common Stock or
securities convertible into or exchangeable or exercisable for or evidencing
any right to purchase or subscribe for any shares of Common Stock during the
Lock-up Period, without the prior written consent of the Underwriter and (ii)
that, for 24 months following the effective date of the Registration
Statement, any sales of the Company's securities shall be made through the
Underwriter in accordance with its customary brokerage practices either on a
principal or agency basis. An appropriate legend shall be marked on the face
of certificates representing all such securities.

In connection with the Offering, the Company has agreed to issue and sell
to the Underwriter and/or its designees, at the closing of the proposed
underwriting, for nominal consideration, the Underwriter's Warrants to

45
<PAGE>

purchase 106,667 Units. The Underwriter's Warrants are exercisable at any
time during a period of four years commencing at the beginning of the second
year after their issuance and sale at a price of $__________ [165% of the
offering price of the Units] per Unit. The shares of Common Stock, Redeemable
Warrants, and shares of Common Stock underlying the Redeemable Warrants
issuable upon the exercise of the Underwriter's Warrant are identical to
those offered to the public. The Underwriter's Warrants contain anti-dilution
provisions providing for adjustment of the number of warrants and exercise
price under certain circumstances. The Underwriter's Warrants grant to the
holders thereof and to the holders of the underlying securities certain
rights of registration of the securities underlying the Underwriter's
Warrants.

In connection with the Bridge Financing, the Company paid to the
Underwriter, as placement agent, $75,000 in cash as commissions, a
non-accountable expense allowance of $22,500 and warrants (the "Placement
Agent Warrants") to purchase 150,000 shares of Common Stock at an exercise
price of $1.50 per share commencing May 28, 1997. The Placement Agent
Warrants will be canceled prior to the consummation of the Offering.

The Company has agreed that for five years from the effective date of the
Registration Statement, the Underwriter may designate one person for election
to the Company's Board of Directors (the "Designation Right"). In the event
that the Underwriter elects not to exercise its Designation Right, then it
may designate one person to attend all meetings of the Company's Board of
Directors for a period of five years. The Company has agreed to reimburse the
Underwriter's designee for all out-of-pocket expenses incurred in connection
with the designee's attendance at meetings of the Board of Directors. The
Company has also agreed to retain the Underwriter as the Company's financial
consultant for a period of 24 months from the date hereof and to pay the
Underwriter a monthly retainer of $2,000, all of which is payable in advance
on the closing date set forth in the Underwriting Agreement.

Prior to this Offering, there has been no public market for the Units, the
Common Stock, or the Redeemable Warrants. Accordingly, the initial public
offering price of the Units and the terms of the Redeemable Warrants were
determined by negotiation between the Company and the Underwriter. The
factors considered in determining such prices and terms, in addition to the
prevailing market conditions, included the history of and the prospects for
the industry in which the Company competes, the market price of the Common
Stock, an assessment of the Company's management, the prospects of the
Company, its capital structure and such other factors that were deemed
relevant. The offering price does not necessarily bear any relationship to
the assets, results of operations or net worth of the Company.

The Underwriter commenced operations in May 1994 and therefore does not
have extensive expertise as an underwriter of public offerings of securities.
In addition, the Underwriter is a relatively small firm and no assurance can
be given that the Underwriter will be able to participate as a market maker
in the Units, the Common Stock or in the Redeemable Warrants, and no
assurance can be given that any broker-dealer will make a market in the
Units, the Common Stock or the Redeemable Warrants.

The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."

LEGAL MATTERS

The validity of the Units offered hereby have been passed upon for the
Company by Edwards & Angell (a partnership including professional
corporations), Providence, Rhode Island. Orrick, Herrington & Sutcliffe LLP,
New York, New York, has acted as counsel for the Underwriter in connection
with the Offering.

EXPERTS

The financial statements of the Company as of June 30, 1995 and 1996 and
for the years then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, and
given on the authority of said firm as experts in auditing and accounting.

46
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
SB-2, including amendments thereto, relating to the Units offered hereby, the
Common Stock and Redeemable Warrants included therein, the Selling
Securityholder Warrants, the Common Stock underlying each of the Redeemable
Warrants and the Selling Securityholder Warrants, and the Selling
Shareholders Common Stock. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete; however, all
material information with respect to such contracts and documents are
disclosed in this Prospectus. In each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

For further information with respect to the Company and the securities
offered hereby, reference is made to such Registration Statement, exhibits
and schedules. A copy of the Registration Statement may be inspected by
anyone without charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York 10048 and at Citicorp Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Such material may also be
accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. As a result of the Offering, the Company will
be subject to the informational requirements of the Exchange Act. So long as
the Company is subject to the periodic reporting requirements of the Exchange
Act, it will furnish the reports and other information required thereby to
the Commission. The Company intends to furnish holders of the Units, the
Common Stock and the Redeemable Warrants with annual reports containing,
among other information, audited financial statements certified by an
independent accounting firm. The Company also intends to furnish such other
reports as it may determine or as may be required by law.

47
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Financial Statements Page
-------------------- --------
<S> <C>
Report of Independent Accountants .................................................................. F-2
Balance Sheet ...................................................................................... F-3
Statement of Operations ............................................................................ F-5
Statement of Mandatorily Redeemable Preferred Stock and Stockholders' Deficit ...................... F-6
Statement of Cash Flows ............................................................................ F-7
Notes to Financial Statements ...................................................................... F-9
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
Access Solutions International, Inc.
(formerly Aquidneck Systems International, Inc.)

In our opinion, the accompanying balance sheet and the related statements of
operations, of mandatorily redeemable preferred stock and stockholders'
deficit and of cash flows present fairly, in all material respects, the
financial position of Access Solutions International, Inc. (formerly
Aquidneck Systems International, Inc.), at June 30, 1995 and 1996, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has suffered recurring losses from operations and has a working capital
deficiency which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Price Waterhouse LLP
August 2, 1996, except as to Note 15 which is as of September 18, 1996
Boston, Massachusetts

F-2
<PAGE>

ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>

June 30, June 30,
1995 1996
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 148,842 $ 537,831
Trade accounts receivable, net of allowance
for doubtful accounts of $60,000 and
$50,304, respectively 815,609 426,005
Inventories 590,673 504,450
Prepaid expenses and other current assets 75,388 61,995
---------- ----------
Total current assets 1,630,512 1,530,281
---------- ----------
Fixed assets, net 726,944 592,461
---------- ----------
Other assets:
Deposits and other assets 92,666 90,940
Service contract inventory 76,893 79,549
Deferred financing costs -- 581,065
---------- ----------
Total other assets 169,559 751,554
---------- ----------
Total assets $2,527,015 $2,874,296
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET (CONTINUED)

<TABLE>
<CAPTION>
June 30, June 30,
1995 1996
------------- --------------
<S> <C> <C>
Liabilities, Mandatorily Redeemable Preferred Stock and
Stockholders' Deficit
Current liabilities:
Note payable - bank $ 440,000 $ 290,000
Notes payable - related parties 375,000 --
Notes payable - bridge -- 1,363,973
Current installments of capital lease obligations 181,171 72,562
Accounts payable 466,751 695,341
Accrued expenses 94,805 163,769
Accrued salaries and wages 327,285 467,234
Deferred revenue - prepaid service contracts 370,108 448,492
----------- -----------
Total current liabilities 2,255,120 3,501,371
Capital lease obligations, excluding current
installments 97,505 31,974
----------- -----------
Total liabilities 2,352,625 3,533,345
----------- -----------
Mandatorily redeemable preferred stock, Series A, $.01
par value; redemption value of $40 per share;
1,000,000 shares authorized; 50,000 and 0 shares
issued and outstanding, respectively 2,088,462 --
----------- -----------
Commitments (Note 7)
Stockholders' deficit:
Common stock, $.01 par value; 8,000,000 shares
authorized; 34,140 and 1,511,865 shares issued,
respectively 341 15,119
Additional paid-in-capital 5,428,229 10,599,720
Accumulated deficit (7,325,501) (11,255,832)
----------- -----------
(1,896,931) (640,993)
Treasury stock, at cost (362 and 1,259 shares,
respectively) (17,141) (18,056)
----------- -----------
Total stockholders' deficit (1,914,072) (659,049)
----------- -----------
Total liabilities, mandatorily redeemable preferred
stock and stockholders' deficit $ 2,527,015 $ 2,874,296
=========== ============

</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Net sales:
Products $ 3,126,022 $ 1,352,408
Services 476,039 634,500
----------- -----------
Total net sales 3,602,061 1,986,908
----------- -----------
Cost of sales:
Products 1,114,963 346,157
Services 184,744 234,229
----------- -----------
Total cost of sales 1,299,707 580,386
----------- -----------
Gross profit 2,302,354 1,406,522
----------- -----------
General and administrative expense 2,033,851 2,058,005
Research and development expense 1,755,891 1,713,094
Selling expense 890,868 843,312
Stock related compensation -- 744,000
----------- -----------
Total expenses 4,680,610 5,358,411
----------- -----------
Operating loss (2,378,256) (3,951,889)
Interest income 15,059 11,856
Interest expense - related party (13,329) (88,181)
Interest expense - other (94,049) (113,614)
----------- -----------
Loss before extraordinary gain (2,470,575) (4,141,828)
Extraordinary gain on debt restructuring -- 320,387
----------- -----------
Net Loss $(2,470,575) $(3,821,441)
============ ===========
Net loss applicable to common stock:
Net loss $ (2,470,575) $ (3,821,441)
Accrued dividends on preferred
stock (88,462) (108,890)
----------- -----------
$(2,559,037) $(3,930,331)
============ ===========
Net loss per common share:
Loss before extraordinary item $ (1.14) $ (1.88)
Extraordinary item -- .14
----------- -----------
$ (1.14) $ (1.74)
============ ===========
Weighted average number of common shares 2,250,259 2,256,150

</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
Mandatorily
Redeemable
Preferred Stock
---------------------------
Shares Amount
-------- -----------
$
<S> <C> <C>
Balances at June 30, 1994 -- --
Shares issued in private offerings 50,000 2,000,000
Shares purchased for Treasury -- --
Exercise of stock options -- --
Compensation associated with award of
stock options -- --
Accrued dividends on preferred stock -- 88,462
Net loss -- --
------- -----------
Balances at June 30, 1995 50,000 $ 2,088,462
Accrued dividends on preferred stock -- 108,890
Conversion of preferred stock (50,000) (2,197,352)
Conversion of debt, primarily related
party -- --
Compensation related to stock grant -- --
Shares purchased for treasury -- --
Warrants issued with Bridge Notes -- --
Net loss -- --
------- -----------
$
Balances at June 30, 1996 -- --
======= ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Stockholders' Deficit
-----------------------------------------------------------------------------------------
Common Stock Additional Treasury Stock Total
--------------------- Paid-in Accumulated ------------------- Stockholders'
Shares Amount Capital Deficit Shares Amount Deficit
--------- -------- ----------- ------------- ------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1994 31,240 $ 312 $ 4,699,810 $ (4,766,464) 286 $ (212) $ (66,554)
Shares issued in private offerings 2,671 27 592,973 -- -- -- 593,000
Shares purchased for Treasury -- -- -- -- 76 (16,929) (16,929)
Exercise of stock options 229 2 16,929 -- -- -- 16,931
Compensation associated with award of
stock options -- -- 118,517 -- -- -- 118,517
Accrued dividends on preferred stock -- -- -- (88,462) -- -- (88,462)
Net loss -- -- -- (2,470,575) -- -- (2,470,575)
--------- ------- ----------- ------------ ----- -------- ----------
Balances at June 30, 1995 34,140 $ 341 $ 5,428,229 $ (7,325,501) 362 $(17,141) $(1,914,072)
Accrued dividends on preferred stock -- -- -- (108,890) -- -- (108,890)
Conversion of preferred stock 7,423 75 2,197,277 -- -- -- 2,197,352
Conversion of debt, primarily related
party 1,053,802 10,538 2,403,549 -- -- -- 2,414,087
Compensation related to stock grant 416,500 4,165 420,665 -- -- -- 424,830
Shares purchased for treasury -- -- -- -- 897 (915) (915)
Warrants issued with Bridge Notes -- -- 150,000 -- -- -- 150,000
Net loss -- -- -- (3,821,441) -- -- (3,821,441)
--------- ------- ----------- ------------ ----- -------- ----------
Balances at June 30, 1996 1,511,865 $15,119 $10,599,720 $(11,255,832) 1,259 $(18,056) $ (659,049)
========= ======= =========== ============ ===== ======== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,470,575) $ (3,821,441)
------------ ------------
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 214,264 245,622
Stock option compensation 118,517 --
Stock compensation award -- 424,830
Debt restructuring gain -- (320,387)
Interest expense settled with issuance of common
stock -- 62,129
Provision for doubtful accounts 40,000 (9,696)
Other non-cash expenses -- 36,930
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable (747,695) 399,300
Inventories (107,045) 83,567
Deposits (8,269) 3,673
Prepaid expenses and other current assets (57,234) 13,393
Increase (decrease) in:
Accounts payable (81,867) 228,590
Accrued expenses 256,933 208,913
Deferred revenue 280,235 78,384
------------ ------------
Total adjustments (92,161) 1,455,248
------------ ------------
Cash used by operating activities (2,562,736) (2,366,193)
------------ ------------
Cash flows from investing activities:
Additions to fixed assets (254,628) (103,604)
Additions to other assets (680) (9,480)
------------ ------------
Cash used for investing activities $ (255,308) $ (113,084)
------------ ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE>

ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from sale of common stock $ 593,000 $ --
Proceeds from sale of preferred stock 2,000,000 --
Proceeds from the exercise of stock
options 2 --
Proceeds from related party loans 1,715,940 2,468,415
Repayments of related party loans (1,340,940) (1,258,000)
Proceeds from bridge loans -- 2,413,971
Issuance of warrants -- 150,000
Repayments on capital lease obligations (150,629) (174,140)
Repayments of note payable - bank (60,000) (150,000)
Purchase of treasury stock -- (915)
Deferred financing costs -- (581,065)
----------- ----------
Cash provided by financing activities 2,757,373 2,868,266
----------- ----------
Net (decrease) increase in cash (60,671) 388,989
Cash, beginning of year 209,513 148,842
----------- ----------
Cash, end of year $ 148,842 $ 537,831
=========== ==========

</TABLE>

The accompanying notes are an integral part of these financial statements.

F-8
<PAGE>

Notes to Financial Statements

1. BUSINESS PURPOSE AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Access Solutions International, Inc. (formerly Aquidneck Systems
International, Inc.) (the "Company") develops, assembles, sells and services
optical data storage systems consisting of integrated computer hardware and
software for the archival storage and retrieval of computer-generated
information. The Company's optical data storage systems are sold principally
to large organizations that need to store and retrieve large quantities of
computer-generated data. To date, the Company's customers primarily operate
in the financial services and insurance industries.

The Company has suffered recurring losses from operations as it continued
to develop its products and infrastructure and has a net working capital
deficit at June 30, 1996. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company has recently
made significant reductions in overhead costs and completed a
recapitalization which eliminated substantially all of the Company's
long-term indebtedness. These actions have reduced the Company's breakeven
point. The Company is actively recruiting qualified candidates to complement
its existing management team and is planning to enhance certain of its
software products. The Company is also planning to establish collaborative
relationships with vendors and customers which will create new opportunities
to foster sales of its products and services. The Company has obtained $1.5
million of short-term financing net of expenses of approximately $110,000
(see Note 7) and is anticipating consummating an initial public offering
("IPO") of securities including its common stock. The Company anticipates
improved financial performance based upon a reduced breakeven point, a more
focused management team and increased sales resulting from product
enhancements and collaborative relationships. Accordingly, the financial
statements do not include any adjustments relating to the recoverability of
assets and classification of liabilities or any other adjustments that might
be necessary should the Company be unable to continue as a going concern.

In January 1996 the Company completed a recapitalization (see Note 2)
which included a reverse stock split in which each share of issued common
stock was converted into 1/74th of a share of common stock. Accordingly, all
references in these financial statements to number of shares, per share
amounts (other than par value) and stock option data have been retroactively
restated to give effect to this reverse split.

A summary of significant accounting policies used by the Company in the
preparation of these financial statements is as follows:

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily of
components used in production, finished goods held for sale and for service
needs, and optical disk storage libraries purchased from third party vendors
for resale to the Company's customers as part of integrated systems. Base
stock service inventories are maintained at customer locations as required
under service contracts and are amortized over a four-year period using the
straight-line method subject to acceleration in the event of impairment or
obsolescence.

The Company's products consist of integrated computer hardware and
software. Rapid technological change and frequent new product introductions
and enhancements could result in excess inventory quantities over current
requirements based on the projected level of sales. No estimate can be made
of a range of amounts of loss that are reasonably possible should such
technological developments be realized.

FIXED ASSETS

Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of
the assets. The estimated useful life of all fixed assets is 5 years.

F-9
<PAGE>

Notes to Financial Statements - (Continued)

1. Business purpose and significant accounting policies - (Continued)

REVENUE RECOGNITION

Product revenues include the sale of optical archiving systems, software
licenses and miscellaneous peripheral hardware.

Revenue from the sale of optical archiving systems and software licenses
is recognized when the system is installed and only insignificant
post-installation obligations remain. In the case of systems installed
subject to acceptance criteria, revenue is recognized upon acceptance of the
system by the customer. Revenue from hardware upgrades is recognized upon
shipment.

Service revenues include post-installation software and hardware
maintenance and consulting services.

The Company provides the first year of software maintenance to customers
as part of the software license purchase price and recognizes the revenue
upon installation of the software. Costs associated with initial year
maintenance are not significant and enhancements provided during this period
are minimal and are expected to be minimal. All software maintenance
contracts after the first year are billed in advance of the service period
and revenues are deferred and recognized ratably over the contract term.
Hardware maintenance is billed for varying terms, and is deferred and
recognized ratably over the term of the agreement. Revenues from consulting
services are recognized upon customers' acceptances or during the period in
which services are provided if customer acceptance is not required and such
amounts are fixed and determinable.

SOFTWARE DEVELOPMENT COSTS

Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional material amounts of
development costs are capitalized and amortized over the economic life of the
related product in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. Costs capitalizable subject to technological
feasibility have not been significant to date.

INCOME TAXES

Income taxes are accounted for in accordance with the Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires an asset and liability method of accounting for deferred income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in effect for
the year in which those differences are expected to be recovered or settled.

NET LOSS PER SHARE

Net loss per share is computed based on the weighted average number of
shares of common stock. Common stock equivalents have not been included in
the computation because their effect would be antidilutive. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock or other potentially dilutive instruments issued at prices below the
estimated public offering price per share during the twelve month period
prior to the filing or subsequent to the balance sheet date but before the
effective date of the initial public offering have been included in the
calculation as if outstanding for all periods presented.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual
results could differ from those estimates.

F-10
<PAGE>

Notes to Financial Statements - (Continued)

1. Business purpose and significant accounting policies - (Continued)

RELIANCE ON SINGLE OR LIMITED SOURCES OF SUPPLY

The Company currently purchases all of its optical disk storage libraries,
CPU boards, fiber optic channel hardware and high-density integrated circuits
from single or limited sources. Although there are a limited number of
manufacturers of these components, management believes that other suppliers
could provide similar products on comparable terms. Total or partial loss of
any such source, however, could cause a delay in manufacturing and a possible
loss of sales, which would affect operating results adversely.

DEFERRED FINANCING COSTS

Legal and other costs incurred in conjunction with a planned initial
public offering of securities will be charged to paid-in capital when the
offering is consummated. If the offering is withdrawn, these capitalized
costs will be charged to expense.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of
("Statement 121"). Statement 121 addresses the accounting for the impairment
of long-lived assets, certain identifiable intangibles and goodwill related
to those assets to be held and used. It also addresses the accounting for
long-lived assets and certain identifiable intangibles to be disposed of.
Statement 121 establishes guidance for recognizing and measuring impairment
losses and requires that the carrying amount of impaired assets be reduced to
fair value. Statement 121 will be effective for the Company's fiscal year
beginning July 1, 1996. The Company does not expect the adoption of Statement
121 to have a material impact on the Company's financial condition, results
of operations or liquidity.

In October 1995 the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123").
Statement 123 defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages (but does not
require) all entities to adopt that method of accounting for all of their
employee stock compensation plans. Entities electing to remain with the
accounting in APB Opinion 25, Accounting for Stock Issued to Employees, must
make pro forma disclosures of operating results and, if presented, operating
results per share, as if the fair value based method of accounting defined in
Statement 123 had been applied. Statement 123 will be effective for the
Company's fiscal year beginning July 1, 1996. The Company has not determined
whether the fair value based method will be adopted.

2. RECAPITALIZATION (INCLUDING RELATED PARTY TRANSACTIONS)

In January 1996 the Company effected several changes to its debt and
equity capital. The changes included a reverse stock split in which each
share of issued common stock was converted into 1/74th of a share of common
stock.

In September 1995 the Company sold 26 units, each unit consisting of a
$50,000 promissory note and a warrant to purchase 265 shares of common stock
at a price per share of $220. The value of the warrants was insignificant.
The total proceeds from the private placement were $1,300,000. In January
1996 the promissory notes and warrants plus unpaid interest in the amount of
$21,370 were converted into 614,733 shares of common stock of the Company. A
director of the Company was among the private investors who received shares
of the Company in the exchange. Total interest expense on these promissory
notes was $55,562, of which $21,370 was satisfied through the issuance of
shares. The Company recognized an extraordinary gain relating to the portion
of the debt restructuring involving non-related parties. The extraordinary
gain of $320,387 was based on the difference between the fair value of the
equity interest granted, $289,476 and the carrying amount of the non- related
party debt, $609,863. The fair value of the equity interest granted was
determined by independent appraisal.

F-11
<PAGE>

Notes to Financial Statements - (Continued)

2. Recapitalization (including related party transactions) - (Continued)

In January 1996 a director of the Company exchanged the balance due him
under a line of credit agreement totalling $1,335,415 plus unpaid interest of
$40,759 for 426,279 shares of common stock of the Company. Total interest
expense on this line of credit was $40,759, all of which was satisfied
through the issuance of shares.

The Company converted all of its outstanding Series A preferred stock into
7,423 shares of common stock as described in Note 13.

In conjunction with the recapitalization, the Company purchased 897 shares
of common stock from certain shareholders. The shareholders surrendered
certain anti-dilution rights they had previously obtained in a May 1993
private placement offering. The total amount paid by the Company for the
purchase of these shares and shareholder rights was $85,274 which amount
represents a return of proceeds previously invested by the shareholders. Of
this amount, $915, representing the fair value of the 897 shares acquired,
was charged to treasury stock and $84,359, representing the excess of the
amount paid over the estimated fair value of the shares, was charged to
general and administrative expenses. The fair value of the shares acquired
was determined by independent appraisal.

3. INVENTORIES

Inventories consist of the following:
June 30, 1995 June 30, 1996
--------------- ---------------
Production inventory $389,201 $470,715
Service inventory 134,193 113,284
Consigned inventory 144,172 --
-------- --------
667,566 583,999
Inventory for service contracts (76,893) (79,549)
-------- --------
Inventory available for sale $590,673 $504,450
======== ========

Consigned inventory at June 30, 1995 consisted of an installed optical
data storage system at a customer site which was awaiting customer
acceptance. In accordance with the Company's revenue recognition accounting
policy described in Note 1, revenue from this sale was recognized in fiscal
1996 upon acceptance of the system by the customer. Inventory required at
customer sites under service contacts is excluded from current assets as it
is not expected to be consumed in the next year.

4. FIXED ASSETS

Fixed assets consist of the following:
June 30, 1995 June 30, 1996
--------------- --------------
Computers and office equipment $ 740,701 $ 763,168
Furniture and fixtures 37,326 38,261
Purchased computer software 149,866 195,773
Computer equipment held under capital leases 526,954 561,249
---------- ----------
1,454,847 1,558,451
Accumulated depreciation and amortization (727,903) (965,990)
---------- ----------
Net fixed assets $ 726,944 $ 592,461
========== ==========

Depreciation and amortization expense was $208,580 and $238,087 during
fiscal 1995 and fiscal 1996, respectively.

F-12
<PAGE>

Notes to Financial Statements - (Continued)

5. NOTE PAYABLE TO BANK

Indebtedness outstanding under a short-term bank loan was $440,000 and
$290,000 at June 30, 1995 and June 30, 1996, respectively. Interest is payable
monthly at the bank's prime rate (8.25% at June 30, 1996) plus 2%. The
borrowings are secured by substantially all assets of the Company. The loan
requires a reduction of principal in the amount of $20,000 at each month end
until September 15, 1996 when the balance is payable in full. As a result of the
variable attributes of this loan, the carrying amount approximates fair value.

6. NOTES PAYABLE -- RELATED PARTIES

In November 1994 the Company entered into a line of credit with a
corporation pursuant to which that corporation loaned the Company $300,000
secured by certain accounts receivable of the Company. The line of credit was
increased to $500,000 on December 1, 1994. The interest rate on the
outstanding balance of the line of credit was 9.75% per annum for each
advance made prior to December 1, 1994 and the prime rate in effect on the
date of each advance made on or after December 1, 1994 plus 2% per annum. The
line of credit was repaid and terminated in February 1995. A director of the
Company is the Chairman of that corporation.

In December 1994 the Company entered into a line of credit with a director
pursuant to which the Company borrowed $200,000 secured by certain accounts
receivable of the Company. The interest rate on the outstanding balance of
the line of credit was the prime rate in effect on the date of each advance
plus 2% per annum. The line of credit was repaid and terminated in January
1995.

In May 1995 the Company entered into a line of credit with a corporation
pursuant to which the Company borrowed $200,000 secured by certain accounts
receivable of the Company. The interest rate on the outstanding balance of
the line of credit was the prime rate in effect on the date of each advance
plus 2% per annum. The balance outstanding was $100,000 at June 30, 1995. The
line of credit was repaid and terminated in September 1995. A director of the
Company is the Chairman of that corporation.

In May 1995 the Company entered into a line of credit with a trust
pursuant to which the Trustees loaned the Company $250,000 secured by certain
accounts receivable of the Company. The interest rate on the outstanding
balance of the line of credit was the prime rate in effect on the date of
each advance plus 2% per annum. The line of credit was increased to $300,000
in June 1995 and the balance outstanding was $275,000 at June 30, 1995. The
line of credit was repaid in July 1995. The Company made several additional
borrowings and repayments under this line of credit throughout fiscal 1996.
The final repayment was made in December 1995 when the line of credit was
terminated. A director of the Corporation is the beneficiary of said trust.

In August 1995 the Company entered into a line of credit agreement with a
director pursuant to which the Company borrowed $1,335,415 at various dates.
This amount was partially secured by certain future accounts receivable of
the Company. Interest on the outstanding balance of the line of credit was
payable at the prime rate plus 2%. In connection with the restructuring
described in Note 2, the director subsequently exchanged all indebtedness due
under the line of credit in the principal amount of $1,335,415, plus $40,759
of unpaid interest, for 426,279 shares of common stock.

In February 1996 the Company borrowed $250,000 from a director. Such
borrowings were evidenced by a demand promissory note which bore interest at
the rate of 10.25% per annum. The note, which was secured by certain accounts
receivable, was repaid in full in February 1996.

In March 1996 the Company borrowed $250,000 from a director. Such
borrowings were secured by certain accounts receivable and were evidenced by
a demand promissory note which bore interest at the rate of 10% per annum.
The note was converted to a bridge loan on May 28, 1996.

In April 1996 the Company borrowed $85,000 from a director for working
capital purposes. The borrowing was evidenced by a demand promissory note
which bore interest at the rate of 10% per annum. The note was repaid on May
31, 1996.

F-13
<PAGE>

Notes to Financial Statements - (Continued)

7. NOTES PAYABLE -- BRIDGE FINANCING

On May 28, 1996 the Company consummated a bridge financing pursuant to
which it issued an aggregate of $1,500,000 principal amount of promissory
notes which bear interest at 10% per annum. The notes are due and payable on
the earlier of the closing of the sale of securities or other financing of
the Company from which the Company receives gross proceeds of at least
$2,500,000 or May 28, 1997. In conjunction with the bridge financing the
Company issued 750,000 warrants. Each warrant entitles the holder to purchase
one share of common stock for $1.50 during the three year period commencing
May 28, 1997. The Company has estimated the value of the warrants to be
$150,000. This amount has been recorded as paid-in capital and is being
accreted to interest expense over the term of the bridge financing. Upon
consummation of a public offering each warrant will automatically convert to
a warrant with the same terms and conditions as the warrants issued in
conjunction with the public offering. The March 31, 1996 $250,000 note
payable to a director was converted to promissory notes issued in conjunction
with this financing.

8. LEASES

OPERATING

The Company leases building space for office and plant facilities. In
February 1996 the Company renegotiated the lease, extending it at
substantially the same rate through December 31, 1997. Under the revised
terms either party may terminate the lease with 60 days notice after December
31, 1996. Total rent expense for the years ended June 30, 1995 and 1996
amounted to approximately $62,000 and $82,000, respectively.

The Company's remaining obligation under the building lease through the
lease extension is approximately $102,000.

CAPITAL

The Company leases certain computer equipment under two capital lease
obligations totalling $104,536 at June 30, 1996. The related assets are
included in fixed assets. Amortization expense related to leased assets was
approximately $104,000 and $112,000 for the years ended June 30, 1995 and
June 30, 1996, respectively. Accumulated amortization related to leased
assets was $289,106 at June 30, 1996.

Obligations under the capital leases are recorded at the present value of
future minimum lease payments using the interest rate implicit in the lease
agreements. As of June 30, 1996 the future minimum annual lease payments,
together with the present value of the net minimum annual lease payments
under the capital leases, are as follows:

Period ending
- -------------
June 30, 1997 $ 78,680
June 30, 1998 27,314
June 30, 1999 6,828
--------
112,822
Less: amount representing interest 8,286
--------
Present value of net minimum lease payments 104,536
Less: current portion 72,562
--------
Long-term portion of obligation under capital
leases $ 31,974
========

9. INCOME TAXES

On July 1, 1993 the Company prospectively adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("Statement 109").
In connection with the adoption, the Company recorded a deferred tax asset of
$1,405,000, primarily comprised of the potential tax benefit associated with
the Company's

F-14
<PAGE>

Notes to Financial Statements - (Continued)
9. Income taxes - (Continued)

net operating loss ("NOL") carryforwards. At the same time, the Company
recorded a valuation allowance of $1,405,000 since based on the weight of
available evidence, it was more likely than not that the deferred tax assets
would not be realized. The adoption of Statement 109 did not have a material
impact on the financial statements.

The Company has not recorded a provision for income taxes in the years
ended June 30, 1995 or 1996 because no net current or deferred benefit is
recognizable for net losses incurred in those years.

The tax effects of NOL carryforwards and temporary differences that give
rise to the deferred tax assets and liabilities at June 30, 1995 and 1996 are
as follows:

<TABLE>
<CAPTION>
June 30,
------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,700,000 $ 3,240,00
Research and development costs capitalized for
tax purposes -- 617,000
Compensation related reserves 30,200 24,000
Provision for doubtful accounts 24,000 20,100
Inventory 71,800 88,800
----------- ----------
2,826,000 3,989,900
Deferred tax liabilities:
Fixed assets (1,600) (1,600)
Valuation allowance (2,824,400) (3,988,300)
----------- ----------
Net deferred tax asset $ -- $ --
============ ==========
</TABLE>

Statement 109 requires that a valuation allowance be established for
deferred tax assets, if based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax asset will not
be realized. The Company has determined that a valuation allowance is
required in light of its history of operating losses since its inception.

At June 30, 1996 the Company has Federal and state NOL carryforwards
available to reduce future taxable income of approximately $8,100,000, which
expire in various amounts between the years 2002 and 2010, if not previously
utilized. In the event of an ownership change, as defined under Section 382
of the Internal Revenue Code, utilization of NOL carryforwards in the period
following the ownership change can be significantly limited. Management
believes that the Company has incurred several changes of ownership under
these rules. As a result, utilization of the NOLs is subject to various
limitations, depending upon the year in which the NOL originated. As of June
30, 1996 management estimates that approximately $5,100,000 of the Company's
Federal NOL carryforwards will be available to offset taxable income that may
be generated within the carryforward period. Of this amount, approximately
$2,400,000 is available for future utilization without limitation. The other
$2,700,000 is subject to a limitation of approximately $180,000 of
utilization per year. However, because the limitation calculations are
complex and subject to review by the Internal Revenue Service, these
limitations could be adjusted at a later date.

In addition, in the event the Company consummates a public offering of
common stock, it is expected that another change of ownership will occur. As
a result of this change, management expects that all prior limitations will
remain in place, except that additional limitations will be imposed on the
$2,400,000 NOL carryforward previously available for utilization without
limitation, as described above. Management estimates that the $2,400,000 NOL
carryforward will be subject to a limitation of approximately $150,000 of
utilization per year, limiting expected total utilization during the
carryforward period to approximately $2,250,000.

F-15
<PAGE>

Notes to Financial Statements - (Continued)

10. STOCK OPTIONS

In 1987 the Company adopted an employee and director stock option plan
(the "1987 Plan"), pursuant to which the Company made grants of options
through November 1994. As of June 30, 1996, there were options outstanding to
purchase 1,921 shares under the 1987 Plan. In November 1994 the Company
adopted a new employee stock option plan (the "1994 Employee Plan") and a
stock option plan for non-employee directors (the "1994 Directors Plan"). The
Company has reserved a number of shares of common stock for the 1994 Employee
Plan equal to the difference between 12,162 and the number of shares issuable
upon the exercise of options outstanding from time to time under the 1987
Plan. As of June 30, 1996 there were options outstanding to purchase 6,430
shares under the 1994 Employee Plan. In addition, the Company has reserved
2,027 shares for the 1994 Directors Plan. As of June 30, 1996 there were
options outstanding to purchase 1,014 shares under the 1994 Directors Plan.
The Company has also granted options from time to time to consultants and in
connection with equity and debt offerings. These options were granted at
exercise prices which were not less than the fair market value of the common
stock on the date the option was granted. As of June 30, 1996 there were
non-plan options outstanding to purchase 891 shares. Both the 1987 Plan and
the 1994 Plan provide for the grant of incentive stock options and
non-qualified stock options. Incentive stock options under both plans must be
granted at an exercise price not less than the fair market value of the
common stock on the date the option is granted. Non-qualified stock options
under the 1987 Plan must be granted at exercise prices not less than 50% of
the fair market value of the common stock on the date the option is granted,
while non-qualified stock options under the 1994 Plan must be granted at
exercise prices not less than the fair market value of the common stock on
the date the option is granted. Options must be exercised within ten (10)
years from grant, except for incentive stock options issued to 10%
stockholders which must be exercised within five (5) years from grant.
Options outstanding under the 1987 Plan and the 1994 Employee Plan vest at
the rate of 20% on the first anniversary of the date of grant and 5% at the
end of each additional three-month period of service. Options under the 1994
Directors Plan vest ratably over four years. Non-plan options vest in
accordance with the terms of the particular option agreement. The range of
vesting periods under non-plan options is from zero to three years.

As of June 30, 1996 the Company had outstanding stock options to purchase
10,114 common shares:

Option Exercise Price Options
Per Share Outstanding
--------------------- -------------
$ 74.00 891
119.88 186
148.00 98
222.00 8,344
240.50 435
351.50 14
399.60 288
------
Total 10,256
======

The following is a summary of stock option activity for the years ended
June 30, 1995 and 1996:

1995 1996
--------- ---------
Outstanding, beginning of period 8,381 11,278
Granted during period 4,792 5,021
Cancelled during period (1,666) (6,043)
Exercised during period (229) --
------- ------
Outstanding, end of period 11,278 10,256
====== ======

During fiscal 1995 the Company granted options to acquire 915 shares of
common stock at an exercise price of $92.50 pursuant to the 1994 Employee
Plan to a former officer of the Company in exchange for an equivalent

F-16
<PAGE>

Notes to Financial Statements - (Continued)

10. Stock options - (Continued)

number of options previously granted to that officer under the 1987 Plan. The
exchange of options created a new measurement date and the Company recognized
compensation expense in the amount of $118,517 based on the difference between
the adjusted exercise price and the fair market value of the options granted.
These options to acquire 915 shares were subsequently cancelled during 1996.

In August 1996 the Company terminated the 1994 Directors' Plan.

In August 1996 the Company terminated its 1987 Stock Option and Purchase
Plan and 1994 Stock Option Plans (the "Terminated Plans") and adopted the
1996 Plan pursuant to which key employees of the Company, including directors
who are employees, are eligible to receive grants of options to purchase
Common Stock, at the discretion of the Compensation Committee. The Company
has reserved 500,000 shares of Common Stock for issuance under the 1996 Plan.
Options granted under the 1996 Plan can be either incentive stock options or
non-qualified options, at the discretion of the Compensation Committee. On
August 1, 1996 the Company cancelled the 8,351 options outstanding under the
Terminated Plans (having exercise prices ranging from $74 to $240.50 per
share) and granted options to purchase 248,351 (of which 8,351 are
immediately exercisable) shares of Common Stock at an exercise price equal to
$3.75 per share.

11. INTERNATIONAL SALES AND MAJOR CUSTOMERS

The Company sells optical archiving systems and related licenses for
software products to customers domestically and internationally.
International sales have all been denominated in U.S. dollars and were
$772,000 and $214,000 in the years ended June 30, 1995 and 1996,
respectively. The Company's sales to Canada represented 10% and 11% of total
revenues for the year ended June 30, 1995 and 1996, respectively.

Sales to five customers represented 18%, 16%, 15%, 14% and 10% of revenue
for the year ended June 30, 1995. Sales to three customers accounted for 35%,
22% and 11% of revenues for the year ended June 30, 1996.

12. PROCEEDS FROM SALES OF COMMON STOCK

During the second quarter of fiscal 1995 the Company sold 2,671 shares in
a private placement of common stock for a total of $593,000.

13. MANDATORILY REDEEMABLE PREFERRED STOCK

In January 1995 the Company sold 50,000 shares of Series A preferred
stock, $.01 par value, in a private placement to a trust for the benefit of
one of the Company's directors. The selling price of $40 per share resulted
in gross proceeds of $2,000,000. The Series A preferred stock had certain
preferred liquidation, dividend and other rights, and was convertible into
common stock upon consummation of an initial public offering of at least
$4,000,000, at a rate of .135 shares of common stock for each share of Series
A preferred stock. Dividends on the Series A preferred stock were cumulative
at a rate of $4 per share annually. Unpaid dividends at June 30, 1995, in the
amount of $88,462 are charged to accumulated deficit in the statement of
mandatorily redeemable preferred stock and stockholders' equity (deficit).

During the year ended June 30, 1996 the Company converted all of these
shares and accumulated dividends on the preferred shares in the amount of
$197,352 into 7,423 shares of common stock.

14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest for the years ended June 30, 1995 and 1996 was
approximately $104,000 and $130,000, respectively.

During the year ended June 30, 1996 there were a number of transactions in
which the Company issued common stock without receiving any cash proceeds. As
discussed in Note 13, the Company issued 7,423 shares of common stock in
exchange for outstanding preferred stock and accumulated unpaid dividends in
the aggregate amount of $2,197,352. In conjunction with the recapitalization
discussed in Note 2, the Company issued 1,041,012 shares of common stock in
forgiveness of debt totalling $2,697,544. In January 1996, the Company issued
416,500 shares of common stock to an officer. Compensation expense in the
aggregate amount of

F-17
<PAGE>

Notes to Financial Statements - (Continued)

14. Supplemental disclosures of cash flow information - (Continued)

$744,000 was recognized in conjunction with this transaction including a
non-cash charge of $424,830, representing the fair value of the common stock
as determined by independent appraisal. The Company also issued 12,790 shares
of common stock to various related parties (including 7,500 shares issued to
a former officer of the Company) in satisfaction of services rendered to the
Company totalling $36,930.

In addition, during the twelve months ended June 30, 1995 and 1996 the
Company acquired approximately $37,000 and $34,000, respectively, of computer
equipment under capital leases.

15. Subsequent event

On September 18, 1996, the maturity date on the note payable to the bank was
extended from September 15, 1996 to October 31, 1996 (see Note 15).

F-18
<PAGE>

- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------

No underwriter, dealer, salesperson or any other person has been
authorized to give any information or to make any representations other than
those contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or the Underwriter. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any date
subsequent to the date hereof. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
------

TABLE OF CONTENTS

Page
--------
Prospectus Summary ........................ 3
Risk Factors .............................. 8
The Company ............................... 15
Use of Proceeds ........................... 16
Dividend Policy ........................... 16
Capitalization ............................ 17
Dilution .................................. 18
Selected Financial Data ................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 20
Business .................................. 25
Management ................................ 32
Certain Transactions ...................... 36
Principal Stockholders .................... 39
Selling Securityholders ................... 40
Description of Securities ................. 41
Securities Eligible for Future Sale ....... 44
Underwriting .............................. 45
Legal Matters ............................. 46
Experts ................................... 46
Available Information ..................... 47
Index to Financial Statements ............. F-1

Until , 1996, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This delivery requirement is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.

- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------

LOGO

1,066,667 UNITS
EACH UNIT CONSISTING
OF
TWO SHARES OF COMMON STOCK
AND
ONE REDEEMABLE WARRANT

------
PROSPECTUS
------

JOSEPH STEVENS & COMPANY, L.P.

------, 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 27. EXHIBITS AND FINANCIAL SCHEDULES.

(a) Exhibits

Exhibit
Number Description of Exhibit
- ----------- ----------------------
10(aa) Employment Agreement dated as of July 31, 1996
between the Company and Robert H. Stone
23(a) Consent of Price Waterhouse LLP

II-1
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, Access
Solutions International, Inc. certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form SB-2 and
authorized this amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of North
Kingstown, State of Rhode Island, on this 19th day of September, 1996.

ACCESS SOLUTIONS INTERNATIONAL, INC.

By /s/ Robert H. Stone
--------------------------------------------
Robert H. Stone
President and Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on September 19, 1996.

Signatures Title
---------- -----
/s/ Malcolm G. Chace III
----------------------------
Malcolm G. Chace III Director, Chairman of the Board

/s/ Robert H. Stone
----------------------------
Robert H. Stone President and Chief Executive Officer, Director
*
----------------------------
Denis L. Marchand Company Controller and Chief Accounting Officer

/s/ Thomas E. Gardner
----------------------------
Thomas E. Gardner Chief Financial Officer and Director

*
----------------------------
Hector D. Wiltshire Director

*
----------------------------
Marvyn Carton Director

*By /s/ Thomas E. Gardner
----------------------------
Thomas E. Gardner
As Attorney-in-fact

II-2

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description of Exhibit Page
- ------- ---------------------- ----

10(aa) Employment Agreement dated as of July 31, 1996 between the
Company and Robert H. Stone

23(a) Consent of Price Waterhouse LLP

<PAGE>

Exhibit 10(aa)

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is made as of the 31st day of
July, 1996 by and between Robert H. Stone, residing at 27 Shore Road, Magnolia,
Massachusetts 01930 ("you") and Access Solutions International, Inc. (formerly
Aquidneck Systems International, Inc.), a Delaware corporation with offices at
650 Ten Rod Road, North Kingstown, RI 02952 (the "Company").

W I T N E S S E T H:

WHEREAS the Company desires to employ you, and you desire to accept
such employment, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and promises hereinafter set forth, the parties hereto agree as
follows:

1. Term. Unless earlier terminated pursuant to the Provisions of
Section 9 hereof, your employment hereunder will be for the period (the "Term")
commencing on August 5, 1996 and ending July 31, 1998, provided that the Term
shall automatically renew in successive one year extensions unless the Company
shall have given you not less than 90 days prior written notice of its intention
to terminate this Agreement as of the last day of the term or any succeeding
extension.

2. Position, Title, Duties. etc. (a) During the Term, you shall be
employed as the President and Chief Executive Officer, reporting directly to the
Board of Directors of the Company, or in such other capacity as may be
determined by the Board of Directors from time to time. Your employment shall be
full-time and exclusive. Your duties shall include supervision of the executive
officers of the Company, reporting to the Board of Directors and shareholders on
all material matters concerning the Company, acting as primary spokesperson for
the Company to its customers and venders and to the public, primary.
responsibility for all operations of the Company, and such other executive and
administrative duties as the Chairman of the Board of Directors shall assign to
you from time to time, consistent with the By-Laws of the Company.

(b) You will, to the best of your abilities, in good faith and with
integrity, devote your time, attention, energy and skill (vacations and
reasonable absences because of sickness and other personal necessity excepted)
during usual business hours (and outside those hours when reasonably necessary
to your duties hereunder) to your duties to the Company and to the promotion of
the Company's interests, as such duties and interests arc determined from time
to time by the Board of Directors. You will be subject to such policies and
procedures as are from time to time established for executive level senior
employees and, as applicable. for employees of the Company generally, except to
the extent that such policies or procedures are contrary to the terms of this
Agreement. You acknowledge and agree that you may be required, without
additional compensation, to perform services for any business entity
controlling, controlled by. or under common control with the Company (such
business entities hereinafter individually and collectively, "Affiliates") and
to accept such office or position with any Affiliate as the Board of

<PAGE>

Directors may require, including, but not limited to, service as an officer or
director of the Company or any Affiliate. You shall comply with all applicable
policies of the Company and Affiliates.

3. Salary. During the Term, the Company will pay you, biweekly, a
salary which initially shall be at an annualized rate of One Hundred
Thirty-Seven Thousand Five Hundred ($137,500) Dollars. Your performance and
salary will be reviewed from time to time, but at least yearly, by the
Compensation Committee of the Board and, in their discretion, your salary may be
adjusted in accordance with such review.

4. Incentive Compensation, Bonuses and Stock Options. (a) You will be
entitled to a bonus (the cash portion of which will be payable within ten (10)
days following the receipt of the Company's audited financial statements for the
fiscal year ended June 30, 1997) calculated as follows: (i) if the Company has a
pre-tax profit for the fiscal year ending June 30, 1997 of $500,000 or less,
five (5%) percent of such pre-tax profit; and (ii) if the Company has a pre-tax
profit for the fiscal year ending June 30, 1997 of more than $500,000, ten (10%)
percent of such pre-tax profit. Such bonus shall be paid partly in cash and
partly by the grant to you on the date hereof of an incentive stock option to
purchase 10,000 shares of the Company's common stock at an exercise price
or S3.75 per share, which stock option will vest only if the Company's pre-tax
profits for the fiscal year ending June 30, 1997 exceed $500,000 and will
otherwise expire. The cash portion or the bonus will be equal to the amount
calculated pursuant to either (i) or (ii) above, reduced by the amount
determined by multiplying any positive difference between: (i) the market price
per share of the Company's common stock on June 30, 1997, and (ii) $3.75. by
10,000. Bonuses for any subsequent fiscal years during which you are employed
will be determined by the Board of Directors after consultation with you;

(b) Subject to approval by the Compensation Committee of the Board, you
also will be granted on the date hereof 40,000 incentive stock options under the
Company's 1996 Stock Option Plan, with an exercise price equivalent to the
offering price on the effective date of the Company's proposed initial public
offering, vesting fifty percent at July 31, 1997, and the remainder at July 31,
1998, so long as you continue to be employed by the Company;

(c) During the Term, you will be entitled to participate in any
incentive compensation, bonus and stock option plan established by the Company
for the benefit of executive level employees of the Company to the extent
prescribed by the Board of Directors.

5. Expenses. (a) Subject to Company policies regarding the pre-approval
of reimbursable expenses, the Company will reimburse you for all reasonable
out-of-pocket expenses incurred by you (including, without limitation,
reasonable living expenses incurred by you in the Providence/North Kingstown
area) for the purpose of and in connection with performing your duties to the
Company hereunder.

(b) Reimbursement of expenses under this Section 5 shall be subject to
proper submission of substantiating documentation requested by the Company, and
shall be paid to you in accordance with the Company's policies respecting
expense reimbursement, as the same may vary from time to time.

<PAGE>

6. Vacation. You shall accrue one and two-thirds days paid vacation for
each month of each calendar year you are employed during the Term. The timing of
vacations shall be mutually agreed, taking into consideration factors important
to you and the Company, and must be approved in advance by the Chairman of the
Board. If any vacation time which you have accrued for any given calendar year
is for any reason unused during said year or the following year, you will be
allowed to accrue such unused vacation into the subsequent calendar year
provided that, unless otherwise mutually agreed, no more than five unused
vacation days shall be so accrued in the aggregate at any given point in time.

7. Other Benefits. The Company will make available to you such health,
life and other insurance coverage, sick day policies, pension plans and other
employee benefits as may generally be made available to executive level senior
employees of the Company subject to and in accordance with the Company policy,
as the same may vary from time to time, and subject to any specific provision of
this Agreement.

8. Confidentiality. (a) Except as required by your duties to the
Company as an employee, you shall not (during or after any period of employment)
directly or indirectly use, publish, disseminate or otherwise disclose any
Confidential Information without the express prior written consent of the
Company. For purposes of this Agreement, "Confidential Information" shall mean
all written and oral confidential or proprietary information of the Company and
its Affiliates, whether or not discovered or developed by you, and of third
parties (such as suppliers, customers and consultants) who may have imparted
information in confidence to the Company or its Affiliates, known by you as a
result of your employment with the Company at any time (including prior to
execution of this Agreement), provided that Confidential Information shall not
include any such information which is now or hereafter becomes generally known
in the industries in which the Company is conducting business without your
fault. You understand that the restriction of this Section shall continue to
apply after your employment is terminated, regardless of the reason for such
termination.

(b) Upon termination of employment with the Company for any reason, you
shall forthwith deliver to the Company all property of the Company, including
without limitation, all copies of all procedural manuals, guides, customer
lists, records and other documents and materials containing Confidential
Information then in your possession or control, whether prepared by you or
others.

(c) You further agree to sign a copy of the each of the Company's
standard Confidentiality Agreement, Non-Competition Agreement and Assignment of
Inventions; provided, however, that the Non-Competition Agreement shall be
modified to provide that in the event your employment is terminated other than
for Cause (as defined below), the Non-Competition provisions will apply only
during such time provided you are receiving severance payments pursuant to
Section 9(b).

9. Termination. Your employment hereunder may be terminated as set
forth in this Section 9, in which event you will be paid your reimbursable
expenses (if submitted, before or

<PAGE>

after such termination, in accordance with Section 5(b) hereof), earned but
unpaid salary and benefits, as well as unused vacation time accrued to date of
termination, and the Company and you will have no further obligation to each
other under this Agreement except as set forth below in this Section 9.

(a) Termination by the Company For Cause. The Company may terminate
your employment upon thirty (30) days written notice at any time for "Cause",
defined for purposes of this Agreement as conduct by you constituting (i) gross
negligence, willful misconduct or breach of fiduciary duty to the Company, or
material default or other material breach of your obligations hereunder or of
any future agreement between you and the Company respecting non-competition or
the ownership or protection of confidential information, inventions, patents,
trademarks, copyrights or other intellectual property, in each case not cured
within 30 days after written notice thereof is given to you, (ii) failure by you
to perform diligently and competently your duties hereunder or (iii) misconduct,
dishonesty, insubordination, or other act by you detrimental to the Company's
good will or damaging its relationship with its customers, suppliers, or
employees, including, without limitation, (A) use of alcohol or illegal drugs
such as to interfere with the performance of your obligations hereunder, (B)
conviction of a felony or of any crime involving moral turpitude, dishonesty, or
theft and (C) material failure by you to comply with applicable laws or
governmental regulations.

(b) Termination by the Company at Will. At any time, the Company may.
terminate your employment upon written notice other than for Cause, in which
event:

(i) you will receive severance payments (at such times and in
such amounts as would otherwise have been paid to you) equal to: (A) if the
termination occurs on or prior to July 31, 1997, twelve months salary; or (B) if
such termination occurs on or after August 1, 1997, the lesser of: (I) twelve
months salary; or (II) the balance of your then current salary through July 31,
1998, but in no event less than six months salary

(ii) you will continue to receive the benefits described in
Section 4 hereof through June 30,1997; and

(c) Termination by You. You may terminate your employment upon 30 days
written notice at any time for any reason or without a stated reason. If you
terminate your employment under Section 9(c), you will work cooperatively with
the Company and use your best efforts to effect a smooth transition.

(d) Expiration of Term. Your employment will terminate on the last day
of the Term or any succeeding extension of the Company has given you notice of
its intention to terminate this Agreement as of such date. In such event, you
will work cooperatively with the Company and use your best efforts to effect a
smooth transition.

(e) Any payments due you under this Section 9 shall, upon your death,
be made to your surviving spouse, or if there is no surviving spouse, to your
surviving children in equal shares, or if there are no surviving children, to
your estate. The payments and benefits (if any)

<PAGE>

required to be provided to you pursuant to this Section 9 shall be in full and
complete satisfaction of any and all obligations owing to you pursuant to this
Agreement.

(e) No termination of this Agreement by either party, regardless of the
circumstances or reasons, shall teminate, amend or in any way affect the
validity of the provisions of Section 8 hereof or any other agreement executed
by you relating to Confidential Information, Non-Competition or Assignment of
Inventions to the Company.

10. No Conflicts. You hereby represent and warrant to the Company that
performance of your obligations under this Agreement does not and will not
violate any written or oral contract, agreement, law or court order by which you
are bound and further you covenant not to create such a violation during the
Term including, without limitation, any such violation created by using any
information belonging to any third party that would be characterized as
Proprietary Information if such information belonged to the Company.

11. Notices. Any notice to be given under this Agreement by either
party shall be in writing, hand delivered, or mailed by certified mail or
registered mail with return receipt requested, and addressed to the other party
at its address at the head of this Agreement or at such other address as such
other party shall have provided notice to the first party in accordance with the
provisions of this Section. Any notice shall be effective upon receipt by the
intended recipient thereof.

12. Non-Waiver of Rights. The failure to enforce at any time any of the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement. Any waiver of
any provision of this Agreement shall be valid only if in writing signed by the
party so waiving, and no waiver of a provision hereof in any given instance
shall operate as a waiver of such provision in any other instance or the waiver
of any other provision of this Agreement

13. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.

14. Assignment. This Agreement shall be binding upon and shall inure to
the benefit of you and the Company and their respective executors,
administrators, heirs, successors and permitted assigns and shall not be
assignable in whole or in part by either party without the written consent of
the other party hereto except assignment by the Company to any person or entity
which at any time, whether by merger, purchase (of stock or assets),
liquidation, reorganization or otherwise, shall acquire all or substantially all
of the assets or business of the Company.

<PAGE>

15. Review of Performance. In January 1997, the Board of Directors will
evaluate your performance to date and if appropriate, will increase your salary
to an annualized rate of One Hundred Fifty Thousand ($150,000.00) Dollars.

16. Miscellaneous. This Agreement embodies the entire agreement of the
parties with respect to the matters within its scope and supersedes any prior
agreements and understandings of the parties respecting the same. This Agreement
shall not be amended or modified except in writing signed by both parties
hereto, and the provisions hereof shall override any contrary or conflicting
provisions in any acknowledgment, invoice or other document unilaterally issued
by either party. The headings contained in this Agreement have been inserted
solely for convenience of reference and shall be of no force or effect in the
construction or interpretation of the provisions of this Agreement. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.

IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the day and year first above written.

THE "COMPANY": ACCESS SOLUTIONS, INC.

By: /s/ Thomas E. Gardner
--------------------------------
Thomas E. Gardner
Treasurer and CFO

"YOU": /s/ Robert H. Stone
--------------------------------
Robert H. Stone

<PAGE>
Exhibit 23(a)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated August 2, 1996, except
as to Note 15 which is as of September 18, 1996, relating to the financial
statements of Access Solutions International, Inc. (formerly Aquidneck Systems
International, Inc.) which appears in such prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.

/s/ Price Waterhouse LLP
- --------------------------
Price Waterhouse LLP
Boston, Massachusetts
September 18, 1996